Sell bonds, buy cash, says Barclays Wealth

Investors should consider trimming their exposure to government bonds and increase their weighting to cash instead, according to Kevin Gardiner of Barclays Wealth Capital.

The head of global investment strategy says that cash is a better safe-haven asset than bonds, Swiss francs or gold, insisting that the US, Swiss and Japanese are all experiencing weakness in their currency.

"Each of the big-three currencies face problems," he explained. "The Swiss franc and the Japanese yen have risen as safe-haven currencies, but Barclays Wealth does not advocate investors take shelter there."

With fears over the ability of European nations to manage their finances wreaking havoc on the markets this month, investors have grown increasingly concerned about the strength of government bonds as a low-risk investment.

However, Gardiner downplays the significance of individual states, believing that growth in the global economy is far more significant.

"We haven’t cut our position in bonds to underweight because we worry about sovereign creditworthiness," he explained. "Rather we see the global economy as being more important than marginal changes in creditworthiness as a driver of markets over the months ahead."

The strategist remains positive on the outlook for equity markets, believing that stocks are pricing in a recession that is unlikely to come.

"The ongoing euro area sovereign debt crisis; the uncertainties surrounding US fiscal policy, and disappointingly weak economic data unsettled markets in August. However, while our own expectations for the second half are more modest than they were, we still believe that developed equity valuations are attractive," he explained.

Investors must be fully aware of the trying times that they are likely to face over the coming months and Gardiner says that an uncertain environment will test the nerve and skills of fund managers.

"Times of market stress are the acid-test for any investment strategy. The ability to generate Alpha, coupled with active risk management, has provided decent downside protection while reducing overall portfolio volatility."