Funds that invest in bonds which protect investors from higher inflation topped the performance charts in August.
The top performing funds across all Investment Association sectors were the £213m Janus Henderson Index Linked Bond fund and the £99m Aberdeen Standard Investments Sterling Inflation Linked Bond fund.
Both of those mandates invest in bonds that have an interest rate that moves according to inflation, and so should offer investors protection from higher inflation.
The sharp falls in sterling seen in recent weeks would be expected to lead to higher inflation in the UK.
Funds that invest in gold also performed strongly. Many investors take the view that gold acts as a protector against inflation.
Ben Yearsley, a director at Shore Financial Planning said: “After a number of years when gold had been dismissed, and cryptocurrencies had seemingly become the de facto alternative to mainstream currencies, 2019 has shown you can’t write off the allure of the shiniest metal.
"Is it a surprise that US real rates have started to fall in 2019 and gold has risen? Many see this as the driver of the gold price and not supply and demand."
Mr Yearsley’s view is that gold competes with government bonds as a safe haven asset class, and as the yield on US government bonds has fallen, gold has become a more attractive investment.
The best performing equity market in August was UK Index Linked Gilts and UK Gilts.
The expectation among many UK investors is that a disruptive exit from the EU would lead to the Bank of England cutting interest rates. In such a scenario, the interest rate on the government bonds issued in the future would be lower than the rate offered by the same bonds issued now, making the bonds already in the market look like a more attractive investment.
The FTSE 100 lost 4 per cent in August, and was the second worst performer, with only the Hong Kong market, the Hang Seng, performing worse.
The best performing equity market during the month was the S&P 500, which lost 0.77 per cent.
Adrian Lowcock, head of personal investing at Willis Owen said: ““The start of August coincided with a significant change in sentiment as investors became concerned over the strength of the global economy, and as fears of a recession rose.”
david.thorpe@ft.com
