The Ruffer Investment Company has adjusted its portfolio protection strategy as traditional relationships between major asset classes become less dependable. The trust’s managers argue that investors can no longer rely on historical patterns in which government bonds or the US dollar typically strengthened when equities fell.
Those relationships came under pressure in 2022, when both bonds and equities declined at the same time. The breakdown appeared again during market turbulence in April 2024, when US equities, government bonds and the dollar all fell together. Such simultaneous weakness has historically been rare and raises questions about whether conventional diversification tools will continue to function in periods of stress.
In response, the trust has introduced alternative forms of downside protection. One of the main additions is credit spread hedging, which acts as insurance against widening spreads in corporate debt markets. When investors become more cautious about credit risk, spreads typically widen, meaning these hedges can gain value during periods of financial strain.
The managers believe this area of the market has become increasingly important as private credit expands and financing linked to artificial intelligence infrastructure grows. A reassessment of credit risk in these areas could drive spread widening and provide protection for the portfolio if broader markets weaken.
Ruffer Investment Company Limited (LON:RICA) is a British investment company dedicated to investments in internationally listed or quoted equities or equity related securities
