Given stocks’ stellar rise over the last year, investors worried about a correction are asking me where they can park their money.
While I still believe that stocks aren’t yet in bubble territory and can still push ahead this year, there’s always the risk that an unknown exogenous shock could send markets tumbling.
So to help investors who are concerned about such a scenario and want to allocate to safe havens to prepare, here’s a look at how various traditional safe-haven investments stack up in terms of post-market shock performance.
Contrary to popular belief, gold may not be the best performing safe–haven option, at least based on an analysis by David Wang, a researcher on my Investment Strategy Group team.
David looked at how a number of safe havens performed in comparison to the broad equity market during periods of high financial–markets stress over the last two decades.
He identified the periods of uncertainty, including the 2008 financial crisis and the collapse of Long–Term Capital Management in 1998, using the Cleveland Financial Stress Index. He also compared the assets’ monthly average risk–adjusted returns in order to gauge which safe havens delivered more stable outperformance.
Based on David’s analysis, though all of the safe havens examined outperformed the broad equity market during the high stress periods, they didn’t outperform equally. The 10–year U.S. Treasury was the best performing safe haven on a risk–adjusted basis, followed by 10–year German Bunds, 10–year U.K. Gilts, yen and gold, as the chart below shows.