This publication examines the options available to investors who fear inflation and its erosion of cash, but who might also be wary of holding risk assets in the current environment.

Investors worried about geopolitical tensions might – so the conventional wisdom goes – want to take some chips off the table and hunker down into the relative safety of cash, government bonds and gold.

One measure of investor worry, options prices in the US equity market, had the VIX Index (linked to the S&P 500 Index of US stocks) at over 17 yesterday, having spiked to above 32 on 27 March before falling significantly. A year before, it was 24.8.

Such nervousness is having an impact. Bank of America’s Global Fund Manager Survey (FMS) found that average cash levels as a share of total portfolios rose to 4.3 per cent in March 2026 – the largest jump since the start of the pandemic in March 2020. 

However, when inflation is sticky – US consumer prices rose 3.3 per cent year-on-year in March, for example – staying in cash can be costly unless it is for a brief episode. Traditional safe havens don’t always follow the script.

To try to reconcile the competing demands of managing risk while avoiding inflation-induced erosion of cash requires, so some say, “all-weather” options. One route might be hedge funds, such as equity hedge (aka long/short) that blend long and short positions to control returns in different market conditions. According to Chicago-headquartered Hedge Fund Research, industry capital grew by $64.0 billion in the first quarter of this year, driven by estimated net asset inflows of $44.5 billion, nearly matching the $44.8 billion of inflows in Q4 2025. The rise coincided with the start of US/Israeli air attacks on Iran to thwart the latter’s alleged nuclear ambitions. Macro hedge fund strategies, that seek to ride expected shifts in interest rates, currencies and other inflation-sensitive entities, were among those taking in fresh money. 

Another option is money market funds, which are large in the US, less developed in the UK and a significant field in places such as France. Aviva Investors – a player in the MMFs area – says the sector deserves more attention.

“Money market funds are an all weather product – the ballast in an investor’s overall asset allocation,” Alastair Sewell (pictured below), liquidity investment strategist at Aviva, told WealthBriefing. “But it's when the weather turns, that they really show their worth. Recent UK data illustrates this clearly. UK domiciled MMFs ended 2025 with around £51 billion in assets; by the end of February this year that figure had risen to approximately £77.5 billion – a near 50 per cent increase in just two months. That is a meaningful signal.”

Alastair Sewell
 

So what is going on?

“There are a few drivers at work,” Sewell said. “First, heightened geopolitical uncertainty, including developments in the Middle East, means some investors are increasing liquidity allocations, for which MMFs are a natural home. When there is a storm to ride out, products such as MMFs that target capital stability and provide the daily liquidity critical to a tactical use case tend to rise.

“Second, we are seeing a structural increase in investor discernment around portfolio liquidity. Liquidity is evidently being treated less and less as cash ‘on autopilot’. Investors are more deliberate about where liquidity sits, how it behaves under stress and what role it plays alongside risk assets. Well regulated MMFs, with clear rules on credit quality, maturity and diversification, fit naturally into that more intentional liquidity framework.

“Taken together, it is reasonable to expect flows to climb further if current conditions persist. MMFs are doing exactly what investors expect of them: providing resilience and optionality at a point in the cycle when both are at a premium,” he said. 

In the UK, a partial reason why MMFs haven’t surged is that investors seeking cash-like returns with a favourable tax treatment have used gilts instead. Of course, with worries about the level of government borrowing weighing on minds, gilts might not appear particularly attractive, although hopes for a turnaround might draw in some. Interestingly, Fidelity International has launched the Fidelity UK Gilt Fund, an actively managed strategy. Other investment managers such as Rathbones Asset Management are also positive about the UK’s gilt market in 2026. See here.

A report in March, about research commissioned in 2025 by Flagstone, a London fintech company, and UK-based research consultancy Censuswide, showed that 38 per cent of HNW individuals hold more cash than they did three years ago, with cash accounting for an average of 19 per cent of their total wealth. 

For HNW investors, and those deemed "sophisticated," there are forms of protection against losses, such as futures, options, swaps, warrants, and entities also such as structured products. In those cases, it will – or should – be mostly up to their advisors to discuss using these instruments or at least inform clients about their value. Like all forms of portfolio options, they come at a price and can be difficult for non-experts to understand.

What about gold?
The gold price rose sharply last year, although it came off its highs and does not always act as a negatively correlated asset, for example when holders sell it to pay for higher margin calls for those trading in certain securities at times of heightened risk. 

It remains an important piece of portfolio ballast. As reported here, Dr Luca Bindelli, head of investment strategy at Swiss private bank Lombard Odier, has said he prefers quality assets and gold in an uncertain geopolitical environment. Others have agreed with this broad analysis.

Risk-on?
For all the noise around markets – the S&P 500 Index of US equities is actually up on the year – investors may take the view that paying for safety is more expensive than appears to be justified. There is also the possibility that the lessons of behavioural finance are having an effect on some clients and advisors, restraining some from churning portfolios having been swayed by media reports and political noise. 

In fact, there are signs that risk appetite is not falling for all investors. A report a few days ago from Charles Stanley Direct, part of Raymond James Wealth Management, showed that 27 per cent of do-it-yourself (DIY) investors are considering taking a high level of risk with their investments in the next few months. Thinking about the level of risk DIY investors are considering, 42 per cent said their risk appetite is higher than usual.

One takeaway from the current environment is that there is no silver bullet for those caught between the inflation threat on one hand and the fear of economic losses on the other. Diversification – that age-old wisdom – appears to remain as important as ever.