The reasons why we are bullish on UK banks

TL;DR

Ruffer Investment Company's portfolio has a significant exposure to global equities, with the UK being the highest weighted country due to its undervalued market. UK banks are attractive holdings, functioning as a hedge against index-linked bonds in the portfolio.

Transcript

hello and welcome to our latest fund manager interview with me today is duncan mckinnis who is the co-manager of the rougha investment company duncan thank you for your time today thanks for having me kel the portfolio has around 40 exposure to equities and in terms of countries the uk is the highest er weighting has that been a long-standing posit... Read More

Key Insights

• 👪 Ruffer Investment Company follows a global investment approach with no home bias.
• 🎁 The UK market was undervalued and unloved due to political turmoil and uncertainty, presenting an opportunity for Ruffer.
• 🥹 UK banks are attractive holdings due to improved risk profiles, profitability, and potential for economic recovery.
• 😒 Ruffer strategically uses UK banks as a hedge against index-linked bonds in the portfolio.
• 🍻 The portfolio benefited from investments in gold mining equities and US Treasury inflation-linked securities during the market downturn in March 2020.
• 👨‍💼 Ruffer has upgraded the caliber of businesses in its portfolio, focusing on value and cyclicals with exposure to recovery and reopening.
• ⛹️ Ruffer has built a separate basket for US healthcare stocks.

Questions & Answers

Q: What is the reason for Ruffer Investment Company's high weighting in the UK market?

Ruffer increased its exposure to the UK due to attractive valuations and the belief that Boris Johnson's election victory and Brexit would reduce uncertainty. The UK market was deeply unloved and undervalued compared to global peers.

Q: Why are UK banks an attractive sector for Ruffer Investment Company?

UK banks are among the most hated sector in the market, but they have undergone a shift in mentality and have de-risked their balance sheets. They are highly profitable even in challenging environments and offer potential upside if economic conditions improve.

Q: How does Ruffer Investment Company use UK banks as a hedge?

UK banks act as a hedge to the index-linked bonds in Ruffer's portfolio. If interest rates increase, the value of index-linked bonds may be affected, while UK banks could benefit from higher interest rates.

Q: Did Ruffer take advantage of market falls in 2020 to make new investments?

During the significant market decline in March 2020, Ruffer made investments in gold mining equities and US Treasury inflation-linked securities. They did not purchase equities heavily at that time but focused on alternative assets they deemed more attractive.

Summary & Key Takeaways

• Ruffer Investment Company has a global investment approach with no home bias in its portfolio.

• The UK has been a significant position due to attractive valuations and improving prospects after the 2019 general election and Brexit.

• UK banks are a key holding, offering good value, de-risked balance sheets, and potential for profitability and economic recovery.