Gartmore Cautious Managed Fund raises index-linked exposure

Chris Burvill is back worrying about inflation again and has been raising the Gartmore Cautious Managed Fund's exposure to index-linked gilts.

"The market appears to be discounting deflation in the near term and is allowing only for inflation being around the 2½% level over the medium term. However, we think that these assumptions entail considerable risks," comments Chris.

"The Government will act vigorously to prevent deflation, even though it's arguable whether it should. At the same time, companies are being forced to cut production because they can't access the money they require to create goods. There is a significant risk that they cut production too far, thereby forcing up prices."

Chris believes also that inflation could move higher over the next year for purely statistical reasons.

"We've had a one-off fall in the prices of food and energy, meaning that like-for-like comparisons later this year will look far less favourable.

"On top of this, we have to consider the impact of sterling weakness on import prices."

Currently, the Gartmore Cautious Managed Fund is weighted 34% in equities, 56% in bonds and 10% in cash. Index-linked gilts make up around 12% of the Fund's bond portfolio.