Tech funds suffered in an uncertain August, as investors searched for safe havens

August saw investors jump ship from technology focused funds amid a volatile month for global stock markets, seeking dry land among more defensive stocks.

With highly-prized AI stocks facing a rough patch, investors instead searched for safer investments, Fidelity said, with money market funds and globally diversified funds seeing increased interest.

While markets eventually recovered much of their losses in time for the end of the month, August kicked off with a shaky start.

Downturn: Investors moved away from tech funds as global stock markets fell in August

Ben Yearsley, director of Fairview Investing, said: ‘August really did feel a bizarre month starting with the mother of all meltdowns in Japan only to see most markets up by month end. 

‘There was panic at the start of August, and undoubtedly some investors probably sold out, but sitting through periods of volatility is often the best approach.’

Stocks tumbled as investors voiced concerns of a possible recession in the US after disappointing July labour market data indicated a slowdown in job creation alongside an increase in unemployment.

Investors, concerned that the Fed was not acting to cut rates quickly enough, also saw a major Tokyo stock market sell-off. 

Combined, these led to stocks suffering, with the S&P 500 plunging 8 per cent by 5 August.

Over the first five days of August the FTSE 100 tumbled 5.6 per cent, while the FTSE 250 plummeted more than 8 per cent in the same period.

Turmoil in the global markets was worsened by AI stocks, with the US’ ‘Magnificent Seven’ having suffered similar downturns in August, at odds with the rest of their recent performance.

Looking to reduce their exposure to these weighty tech stocks, investors have turned their attention elsewhere an investing in more diversified or defensive assets.

Fidelity said Legal & General’s Global Technology Index Trust has constantly been one of the top 10 selling funds among its Isa and Sipp investors. In August, however, it failed to make the list.

Tom Stevenson, investment director at Fidelity International, said: ‘The tech sector has had a stellar run, but the past month has been rocky. 

‘Nvidia has become the single biggest influence on the stock market this year, with a high correlation between movements in its share price and that of the wider market and the value of the company by about $750billion in July and August before regaining all of that lost market capitalisation in a handful of trading days.’

Which funds performed well?

Money market funds have proven a draw to investors in recent weeks, as they offer decent returns for the comparatively low level of risk and are generally popular as short term investments, making them ideal during volatile periods.

Stevenson said: ‘We’re seeing a classic shift towards safety, as investors seeking stability looked to preserve capital amid market volatility. 

‘In this shift, money market funds have become very appealing once again – offering liquidity and security, funds such as the Royal London Short Term Money Market Fund and Fidelity Cash Fund continue to be popular among Fidelity’s Isa and Sipp investors.’

According to Fidelity, the move away from tech funds was also positive for global funds and emerging markets funds, which have given investors an opportunity to diversify their holdings and reduce their exposure to tech stocks.

‘A new entrant to the top ten for Isa investors is the HSBC FTSE All Share World Index Fund, indicating that investors are seeking broader exposure amidst global economic uncertainties,’ Stevenson said. 

‘Notably, emerging market funds like the Fidelity China Focus Fund and Jupiter India Fund also attracted significant interest, highlighting a strategic pivot towards regions with growth potential.’

With US inflation back under control, Yearsley said, Federal reserve rate cuts are still likely on the cards for September

However, despite the bounceback seen as August rolled on, global markets slid once again on 4 September as weak manufacturing data raised renewed fears of economic slowdown.

With fresh investor uncertainty abounding, it appears these safe haven funds could have more than just one month in the sun.

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