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The Accumulator: Brexit fears take hold as investors pile into bonds

The Accumulator: Brexit fears take hold as investors pile into bonds

It's been another strong week for global stock markets, with the US Federal Reserve's singal that interest rate rises are off the table for the rest of the year driving the latest leg of a sharp rally since the turn of the year.

But for UK investors, the impact of Theresa May's attempts to avoid a no-deal Brexit have loomed largest over their portfolios.

It's been a glum week for the pound, down against the other major global currencies in our exclusive Accumulator data table.

Even the dollar, weighed down by the dovish Fed, made gains versus slumping sterling.

That has served to supercharge returns from overseas markets. China is up 5.8% in pound terms, continuing a rip-roaring 2019, with its stock market up nearly 25% since the turn of the year.

Russia has surged 7.1% over the week to yesterday, buoyed by another leap for the oil price, up 6.4% this week and 32.6% in 2019 so far.

And the FTSE 100 has felt the benefit of the pound's fall, in boosting the value of the roughly three-quarters of UK blue-chip earnings from overseas.

The pound's fall meanwhile obscures another trend seen this week, a strong rally for UK government bonds, or gilts.

Most of the rally seen across fixed income markets in our table can be attributed to currency: jumps for eurozone and US government debt is down largely to the rise in the euro and dollar versus the pound.

Not so for gilts. UK government bonds have moved sharply higher this week, leading to big jumps for funds focused on the sector. 

Index-linked gilt funds have led the way, as the table below shows.

Fund One-week return (%)
Janus Henderson Index Linked Bond 4.1
Insight Investment UK Index Linked Bond 4.1
AXA Sterling Index Linked Bond 4.1
Vanguard UK Inflated Linked Gilt Index 4
Vanguard UK Long Duration Gilt Index 4
iShares Index Linked Gilt Index 4
Newton Index Linked Gilt 3.8
Aberdeen Sterling Long Dated Government Bond 3.8
iShares Over 15 Years Gilts Index 3.8
Legal & General All Stocks Index Linked Gilt 3.7

Source: Lipper

You can access the Accumulator here.

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