With billions of pounds still sitting in cash accounts, Darius McDermott, managing director of FundCalibre, examines how advisers can help cautious investors take their first steps into markets through carefully selected fixed income and multi-asset solutions.
The UK has a cash problem. Huge amounts of the nation’s savings, are stuck in unproductive cash accounts, including around 60% of all ISA savings*.
This is bad for the economy because this is ‘dead’ capital. It does nothing to support economic growth or UK businesses. It is also bad for individuals because they could be achieving a higher level of growth on their savings.
Former Chancellor Rachel Reeves made some tentative steps to address this problem by cutting the annual cash ISA allowance to £12,000. This is due to come into effect in April 2027.
While this addresses part of the problem, there is still some reluctance among savers to divert their cash holdings elsewhere. Natural risk aversion has conspired with over-zealous risk warnings to leave many people still nervous about investing.
For advisers and paraplanners, this is an ongoing challenge. One of their most important roles is to encourage clients away from cash for the long-term health of their finances.
This involves convincing clients that this is not an all or nothing decision. They can take a softly, softly approach to taking on risk.
The Chancellor has put elaborate anti-circumvention rules in place to ensure that ISA investors are not simply sticking everything in cash-like instruments.
They cannot get away with money market funds, for example. However, there are a range of low volatility options that investors could consider.
A carefully-constructed corporate bond fund, for example, can fit the bill. Jeremy Wharton, manager of the IFSL Church House Investment Grade Fixed Interest fund, says: “A lot of people understand volatility from the equity part of a portfolio, but they don’t want – and shouldn’t have to receive – undue volatility in their fixed income and credit allocation. That’s not what it’s there for. We believe you need to limit that volatility as much as possible and focus on more predictable returns.”
The fund has been going for 26 years, which means it has seen a variety of market conditions. It focuses exclusively on investment grade credit. If a holding moves to a high yield rating, it will be sold immediately.
The fund also has a requirement to hold a minimum of 25% in AAA-rated paper. This used to be gilts, but is now in a mix of supranational and covered bonds.
It does not follow a benchmark and has a maximum of 4% in any one holding. It is also sterling-only, so investors aren’t taking any currency risk.
Wharton adds: “This is not a benchmark fund. We think benchmarks in this asset class lead people down the wrong rabbit holes – too much duration, the wrong type of credit risk, or too much exposure to different sectors.” It currently has a yield of 4.6%**.
The next step up on the risk ladder might be the Invesco Bond Income Plus Limited. It invests in high yield bonds, which have seen higher volatility.
However, manager Rhys Davis is careful on the exposure he takes in different environments: “We are choosing bonds that we feel pay us enough yield for the various risks that are out there.” The yield is higher, at 7.1%***.
He adds that a high income can help manage through volatile periods: “The great thing about corporate bonds is that we are getting paid an income while we are waiting. Those companies must pay us a coupon every quarter or half year.
Of course, we’re looking at the risks and how the picture is evolving, particularly in these markets where there is a lot of volatility, but for us, it makes sense to sit tight.”
The risk in this part of the market has fallen over time, with the credit quality improving across the sector and fewer defaults. Davis adds: “We have much more BB-rated issuance – the higher quality end of the high yield index. That has changed a lot in 20 years. We have a better quality universe to pick from.” Also, interest rates are a little lower than at their peak in 2023, which puts less strain on companies.
The Orbis Global Cautious fund is an option for investors to dip their toe into equities. It only has around 30% in the stock market, and those holdings are chosen carefully. Portfolio manager Mark Dunley-Owen says: “What we own is also important, since equities are not equally risky.
“The portfolio’s equity holdings have a beta below one and a relatively low correlation to the market, meaning they are less sensitive to broad market swings and behave differently from the index. The equity risk we are taking is largely stock-specific and valuation-driven, not a broad market call.”
They are also careful on what they pay for their equity holdings. “Since inception, they have traded at a valuation discount to world stock markets – we are paying less for every dollar of free cash flow our companies generate.”
These equity holdings sit alongside a selection of inflation-linked and short-duration US sovereign bonds, designed to limit the portfolio’s exposure to inflation. The fund’s corporate bond exposure is “modest and focused on idiosyncratic opportunities”^.
Baillie Gifford Cautious Managed might be an option if investors are AI-curious, but want to take exposure in a risk-controlled way. The fund has exposure to higher volatility companies such as SpaceX, but will balance that with holdings such as Babcock, the defence and engineering company, or pharmaceutical giant AstraZeneca.
The bond portfolio is equally eclectic, with holdings in government bonds from Colombia and Hungary alongside more conventional options such as UK gilts^^.
A lower risk equity choice might be a fund such as the Brunner Investment Trust. Described by manager Julian Bishop as a “sober, free cash flow-centric trust”, it is an AIC ‘dividend hero’, with 54 years of consecutive dividend increases^^^. It balances technology exposure through companies such as Alphabet and TSMC, with Tesco, Shell and Schneider Electric^^^^.
There are plenty of non-scary options for investors taking the first steps out of cash. In the long run, it should be good for their wealth and good for UK growth as well.
*Source: UK Parliament, 25 October 2025
**Source: FE fundinfo, 29 July 2026
***Source: AIC, 28 July 2026
^Source: fund commentary, 30 June 2026
^^Source: fund Q2 update
^^^Source: AIC, 16 March 2026
^^^^Source: fund factsheet, 30 June 2026
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Darius’s views are his own and do not constitute financial advice.
Main image: invest, cash, towfiqu-barbhuiya-jpqyfK7GB4w-unsplash
