In regards to gold in particular, although the precious metal ranked highest in terms of average outperformance when risk didn’t come into the equation, it actually was the least attractive safe haven on a risk–adjusted basis. This is thanks to its status as the most risky safe haven examined (as measured by return volatility).
In addition, David found that U.S. Treasuries tended to outperform even when the source of uncertainty happened to be the U.S. government. In other words, investors who are worried about U.S. fiscal policy or a government shutdown might still want to opt for U.S. Treasuries as a safe haven. This may have to do with investors’ perception that the U.S. Treasury is the closest thing we’ve got to a risk-free asset, and their faith that the U.S. government will always solve its problems, even if the solutions come at the last minute.
To be sure, David’s analysis didn’t include an exhaustive list of safe–haven assets. Still, it’s a helpful start for setting a safe–haven allocation. In addition, safe haven assets aren’t risk-free investments. Still, it’s worth noting that even the least attractive safe haven (i.e. gold) in the analysis still outperformed the equity market during the stressful periods examined in the analysis.
Finally, these safe havens are probably not the best options for investors who, like me, don’t see a correction looming on the horizon. During periods of normal market performance when uncertainty isn’t high, safe havens tend to underperform the equity market.
Russ Koesterich, CFA, is the Chief Investment Strategist for BlackRock and iShares Chief Global Investment Strategist. He is a regular contributor to The Blog and you can find more of his posts here.
Source: BlackRock Investment Strategy Group Research, Bloomberg