Tech stocks suffered losses in an uncertain August as investors sought safe havens

In August, investors exited technology funds amid a volatile month for global equity markets, seeking dry ground in more defensive stocks.

With highly sought-after AI stocks struggling, investors have sought safer investments, Fidelity said. Money market funds and globally diversified funds have seen increased interest.

Although markets recovered much of their losses by the end of the month, August got off to a slow start.

Ben Yearsley, director of Fairview Investing, said: ‘August really felt like a bizarre month. It started with the biggest crisis in Japan, but towards the end of the month most markets were rallying again.

‘There was panic in early August and undoubtedly some investors sold their shares, but it is often the best approach to ride out periods of volatility.’

Stocks fell as investors raised concerns about a potential U.S. recession after disappointing July labor market data pointed to a slowdown in job growth and a rise in unemployment.

Investors feared the Fed would not act quickly enough to cut rates and also saw a major sell-off in the Tokyo stock market.

Together, these developments caused stock prices to fall, with the S&P 500 falling 8 percent on August 5.

In the first five days of August, the FTSE 100 fell 5.6 percent, while the FTSE 250 fell more than 8 percent over the same period.

The global market turmoil was exacerbated by AI stocks. The US ‘Magnificent Seven’ had already suffered a similar decline in August, in stark contrast to the company’s other recent performance.

To reduce their exposure to these key technology stocks, investors are turning their attention to other investments and investing in more diversified or defensive assets.

Fidelity said Legal & General’s Global Technology Index Trust was consistently among the top 10 funds to sell among its Isa and Sipp investors, but failed to make the list in August.

Tom Stevenson, investment director at Fidelity International, said: ‘The technology sector has had a great run, but the past month has been bumpy.

‘Nvidia has become the largest influential player in the stock market this year, with a high correlation between its share price movements and those of the broader market. The company was valued at around $750 billion in July and August before clawing back all of that lost market cap in a handful of trading days.’

Which funds performed well?

Money market funds have proven attractive to investors in recent weeks, as they offer reasonable returns for relatively low risk and are generally popular as short-term investments, making them ideal in uncertain times.

Stevenson said: ‘We are seeing a classic shift to safety as investors seeking stability look to preserve their capital amid market volatility.

‘In this shift, money market funds have become very attractive again. They offer liquidity and safety and funds such as the Royal London Short Term Money Market Fund and Fidelity Cash Fund remain popular with Fidelity Isa and Sipp investors.’

According to Fidelity, the shift away from technology funds was also positive for global and emerging markets funds, allowing investors to diversify their investments and reduce their exposure to technology stocks.

“A newcomer to the top ten for Isa investors is the HSBC FTSE All Share World Index Fund, indicating that investors are seeking broader exposure amid global economic uncertainties,” said Stevenson.

‘It is notable that emerging markets funds, such as the Fidelity China Focus Fund and the Jupiter India Fund, also attracted a lot of interest. This underlines the strategic focus on regions with growth potential.’

With US inflation now under control, Yearsley said the Federal Reserve is still likely to cut rates in September

But despite the recovery expected in August, global markets fell again on September 4 as weak manufacturing data renewed concerns about an economic slowdown.

With so much uncertainty among investors again, it looks like these safe haven funds could stay in the sun for more than a month.