Research_strapline

Are you an:

Don't let the labels put you off!
If you're not an investor, but you want to learn, you can select investor

×

Register for FundCalibre!

We just need to know
if you are an:

Don't let the labels put you off!
If you're not an investor, but you want to learn, you can select investor

×

18 August 2016

Lower rates and higher inflation increase the pain for cash savers

When Mark Carney announced interest rates would fall to 0.25% earlier this month, he also said he fully expected savers to move into riskier assets as a consequence.

With Santander now slashing one of the best cash account rates from 3% to 1.5%, and inflation starting to edge up as a result of the pound's devaluation, anyone still holding cash may well now be looking for alternative ideas.

We look at some funds those savers may like to consider.

1) Search for a higher yield

Because the income paid by bonds is usually fixed at the time they are issued, high or rising inflation can be a problem as it erodes the real return you receive. To mitigate this risk you could go one of two ways: either invest in a fund such as AXA Sterling Credit Short Duration Bond, which only invests in bonds close to maturity, or look for a bond fund paying a high enough yield to provide a cushion. Invesco Perpetual Monthly Income Plus, which has a yield of 5.5%* and Premier Multi-Asset Monthly Income, which invests in all asset classes and currently has a 4.7% yield* are worth a look.

Elite Rated funds with yields between 3 and 5% Elite Rated funds with yields above 5%

2) Find inflation-proof industries

Some companies do better than others in inflationary environments. Cash generation and pricing power both provide buffers for a company, enabling it to self-fund its operations and offset rising costs by passing them on to customers. Evenlode Income invests in some such companies. Infrastructure is also a good bet, as toll roads, for example, have prices linked to inflation. You could consider First State Global Listed Infrastructure.

3) Go all out for UK equities

Alternatively, you could just decide to put your faith in the central bank and invest in UK plc. R&M UK Equity Long Term Recovery and Man GLG Undervalued Assets are interesting options. As we start to extricate ourselves from Europe, volatility is likely to increase and there may be plenty of opportunities to invest in good companies that find themselves undervalued by the market and at fire-sale prices.

Search all Elite Rated UK equity funds

Where to next?

*Source: FE Analytics as at 16th August 2016

©2016 FundCalibre Ltd. All Rights Reserved. The information, data, analyses, and opinions contained herein (1) include the proprietary information of FundCalibre, (2) may not be copied or redistributed without prior permission, (3) do not constitute investment advice offered by FundCalibre, (4) are provided solely for informational purposes and therefore are not an offer to buy or sell a security, and (5) are not warranted to be correct, complete, or accurate. FundCalibre, shall not be responsible for any trading decisions, damages, or other losses resulting from, or related to, this information, data, analyses, or opinions or their use.