Monday Club – 08/09/25: Your weekly Wealthwise digest

Investment round-up

Equity funds see outflows

Outflows from equity funds increased in August despite buoyant stockmarkets, as fund investors remained wary of high valuations. Investors withdrew £1.31bn from equity funds according to Calastone’s latest Fund Flow Index, the worst outflows since 2022.

Schroders’ senior hire from BNY

Schroders has hired Ed Mitchell as head of client group strategy execution and delivery. Joining from BNY Investments, where he was global head of distribution business operations, he has also held positions at Barclays and Henderson Global Investors.

Saba finds new target

Activist investor Saba Capital Management has taken a 5% position in SDCL Efficiency Income Trust. The share price of the trust, which is currently trading at a 36.2% discount and has almost £1.1bn in assets, dropped some two-thirds between July 2022 and May 2025.

Dimensional unveils UK ETFs

The US’s largest issuer of actively managed exchange traded funds is set to launch its first ETFs in Europe. Texas-based Dimensional Fund Advisors will unveil a core developed markets ETF and a small and mid-cap value vehicle, both listed in London and Frankfurt, before the end of the year.

FCA investigates LSE data-centres

The Financial Conduct Authority has started an investigation into the restricted access to the London Stock Exchange Group’s data-centres. The regulator is concerned the group and the landlord of the London Stock Exchange’s data centre building have “hindered competition for low-latency connectivity services between certain trading venues”.

Goldman Sachs buys into T Rowe Price

Goldman Sachs has taken a $1bn stake in T Rowe Price, as part of a “strategic collaboration” to deliver private and public market portfolios. The pair said they would leverage each other’s investment expertise, solutions and understanding of intermediaries to incorporate private markets into their offering.

LISA holders focus on retirement

Just 16% of Lifetime Isa holders have made a withdrawal to buy their first home, even though almost half had apparently opened the account with the intention of using it to fund a property purchase. The data suggests more people are choosing to use LISAs to fund their retirement.

In focus: Gilty treasure?

If something as supposedly steady as the long end of the gilt market can have a rollercoaster week, then it just had one. Yields spiked, prompting plenty of hand-wringing about the state of the UK’s debt burden – not to mention the grim choices facing chancellor Rachel Reeves in her Budget, now inked in for 26 November. Maybe, though – just maybe – the reality does not justify the panic.

30-year gilt yields moved as high as 5.7% in the middle of last week – their highest level in more than a decade – prompting some overwrought headlines, including speculation the UK would have to seek help from the International Monetary Fund. Eventually, the clamour faded as Bank of England governor Andrew Bailey said it would pare back its quantitative tightening programme for the remainder of the year.

The temptation is to blame these periodic wobbles on the incumbent government’s poor management of the economy – and there is no doubt the administration’s precarious fiscal position has contributed.

“The rise in long-dated bond yields is happening without any corresponding rise in inflation expectations,” notes Andrew Pottie, investment director at Schroders. “This tells us the move is not being driven by anxiety about inflation but primarily reflects concern about government finances and the additional yield that investors require to hold longer-dated bonds.”

There is no shortage of reasons to be worried either. The UK’s net debt as a percentage of GDP was 96.1% at the end of July. Despite promises to the contrary, this is actually higher than the 95.6% level 12 months earlier. Gross government debt meanwhile is now £2.7tn and attempts to reduce it through cost savings have been largely unsuccessful, with the government forced to row back on benefit cuts and welfare reform. Economic growth could help bail the government out but has shown few signs of reviving.

According to Pottie, the big fear is for a “doom loop”. “Worrying levels of debt cause interest rates to rise; higher interest payments mean governments borrow more to meet day-to-day expenditure; and debt levels rise even further,” he explains.

The structure of UK debt is also a cause for concern. Around a quarter of the UK’s national debt is in index-linked bonds, making it uniquely vulnerable to rising inflation. Part of the reason for higher debt bills is the rising repayments due on index-linked gilts.

Nevertheless, says Lothar Mentel, chief investment officer at Tatton Asset Management, while it is easy to get carried away with the “hell in a handbasket” narrative on government debt with talk of a looming gilt crisis, “we should remember this is not just a UK story”. “We saw a similar yield spike last autumn,” he adds. “There was crisis talk back then too, but long-term yields quickly came back down.”

Last week, at a Treasury Committee session, the Bank of England’s Bailey told MPs the recent commentary on the jump in long-dated borrowing costs had been “dramatic”, adding: “I wouldn’t exaggerate the 30-year bond rate.”

A significant part of the problem has been a ‘buyer’s strike’ at the longer end of the gilt market. Defined benefit pension funds have historically been a significant buyer of long-dated gilts, but these are declining in number as part of a shift to defined contribution schemes.

Equally, gilts are having to compete with other global bond markets at a time when lots of governments around the world have high debt burdens to support. There is, by and large, too much debt for investors to absorb and most countries are struggling.

“International factors have definitely contributed,” agrees Emma Moriarty, portfolio manager at CG Asset Management. “Gilts have to compete in the market of other developed market government bonds, and when all of the UK’s closest competitors – the US and Europe – are also facing intractable fiscal issues, market participants fear increasing supply in an environment where the traditional price insensitive buyers – central bank quantitative easing and pension funds – may not be able to respond to the same extent. Ultimately, price will be the adjustment mechanism.”

While the problem is not about to go away, the UK is not in as bad a position as, say, Japan, where the central bank has struggled to gain buyers for its long-dated debt. “The real story for the UK should be that its Debt Management Office has just managed to syndicate £14bn of 10-year gilts – a record size,” argues Matthew Amis, investment director, rates management, at Aberdeen. “That is not something that could be delivered in a Truss-like meltdown.”

There are in fact relatively straightforward solutions to a buyers’ strike. The problem, for example, can be addressed by an easing of quantitative tightening – as the Bank of England is now doing. A shift of debt issuance from the long end to the short end is also a potential solution and this too is happening.

“One striking feature of the Debt Management Office’s more recent announcements is the shift away from issuing long-dated gilts,” says Moriarty. “The office is mandated to issue debt in a way that minimises financing costs and, more recently, their issuance has shifted away from longer-dated gilts and towards shorter maturities.”

One final question is whether gilts represent good value at these levels – particularly if the UK is not in danger of imminent default. Debt levels are high but they are not an outlier to other developed markets and the UK government still has a range of policy options at its disposal. It has yet to back away from any of its manifesto promises but this remains an option – albeit a politically unpalatable one.

For David Roberts, head of fixed income at Nedgroup Investments, gilts do look good value. “Gilt yields at the highest since the 1990s?” he begins. “Let’s put that another way – they haven’t offered greater return potential in nearly 30 years.

“And the widely reported sell-off has been orderly – so orderly in fact that total returns, year to date, are actually still slightly positive. You can afford a chunk of capital loss from an asset when you are being paid nearly 6% a year to own it so I am happy to add a small amount of such cheap assets to help diversify my global bond fund.’’

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