Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to a Fidelity adviser or an authorised financial adviser of your choice.

IT is becoming increasingly clear that some of the rules that have guided investors in recent history will need some re-examination in the post-pandemic world. As governments commit to ever-larger spending packages, inflation embeds itself into the system and central banks reverse direction on interest rates, some old assumptions need to be thrown out.

The first is that fixed income will prove a safe haven. At a time of rising rates and rising inflation, bond markets are a tough place to invest. UK gilt funds are down an average of 5.8% for the year to date.1 Another problem is that as central banks shift their stance on interest rates, bond prices may not protect against stock market volatility. The diversification benefits they once offered could evaporate.

Looking at the best-seller list for October, investors already appear to be wise to this shift. There are just two funds that feature any fixed income in the SIPP top 10 last month – the Baillie Gifford Managed Fund and the Vanguard LifeStrategy 80% Equity Fund. In both cases the fixed income weighting is limited (less than 20%) and, highly selective. It is a clear sign that fixed income has fallen out of favour.

Cash appears to have taken its place for risk-averse investors, with the Fidelity Cash Fund the second most popular ISA investment and the fourth most popular SIPP investment. While cash carries the risk of erosion by inflation, it is not vulnerable to higher interest rates and has certainly proved a popular choice.

The climate conundrum

The COP 26 summit in Glasgow has put climate change on the front pages, with tangible funding commitments to tackle deforestation and methane emissions. At the same time, a coalition of international finance companies led by ex-Bank of England Governor Mark Carney has committed $130 trillion of private capital to hit net zero targets by 2050.2 That is seven times the size of the whole US economy.3

Against this backdrop, it is perhaps surprising that only one fund in the top 10 has climate change as an explicit part of its objectives – the Baillie Gifford Positive Change Fund. Carbon reduction is a priority for policymakers and it is clear companies and governments are making significant financial commitments to net zero. In Europe, over half of all fund flows are going into sustainability strategies4 and the UK may start to follow this pattern.

US and technology

Elsewhere, investors remain reluctant to move away from the US/technology trade that has worked so well for them over the past few years. This year, they have been vindicated. After a brief hiatus at the start of the year, technology and US shares have continued to climb, supported by strong earnings.

However, a note of caution. Regulatory and legal challenges are mounting for the largest technology companies. Just as policymakers are becoming more alert to the climate crisis, they are also becoming more alert to social harms with technology companies in the firing line. Diversification is crucial.

Top 10 best-selling ISA funds on Fidelity Personal Investing in October 2021

1.    Rathbone Global Opportunities Fund
2.    Fidelity Cash Fund
3.    Fundsmith Equity Fund
4.    Fidelity Index World Fund
5.    Baillie Gifford Positive Change Fund
6.    Baillie Gifford American Fund
7.    Fidelity Global Special Situations Fund
8.    Fidelity Global Technology Fund
9.    Fidelity Index UK Fund
10.  Fidelity MoneyBuilder Income Fund

Source: Fidelity International. Gross ISA sales in October 2021 for Personal Investors only.

Top 10 best-selling SIPP funds on Fidelity Personal Investing in October 2021

1.    Fundsmith Equity Fund
2.    Rathbone Global Opportunities Fund
3.    Fidelity Index World Fund
4.    Fidelity Cash Fund
5.    Fidelity Global Technology Fund
6.    Baillie Gifford Managed
7.    Vanguard LifeStrategy 80% Equity Fund
8.    Baillie Gifford Positive Change Fund
9.    Baillie Gifford American Fund
10.  Fidelity Special Situations Fund

Source: Fidelity International. Gross SIPP sales in October 2021 for Personal Investors only.

Source:

1  https://www.trustnet.com/fund/sectors/performance?universe=O – to 2 November 2021.
2  https://www.ft.com/content/8f7323c8-3197-4a69-9fcd-1965f3df40a7
3  https://www.worldometers.info/gdp/gdp-by-country/
4  Morningstar report - SFDR Article 8 and Article 9 Funds: Q3 2021 in Review

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Tax treatment depends on individual circumstances and all tax rules may change in the future. The minimum age you can normally access your pension savings is currently 55, and is due to rise to 57 on 6 April 2028, unless you have a lower protected pension age. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall. Select 50 is not a personal recommendation to buy or sell a fund. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to a Fidelity adviser or an authorised financial adviser of your choice.

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