Safe-haven Assets are Growing in Importance

Investors face turbulent times as global geopolitical events and the ever present threat of Covid cause market volatility. Emulating returns realised from late 2020 through 2021will also prove challenging, given moderated global economic growth, high equity valuations, and rising inflation spurred on by runaway oil prices. The resultant interest rate hiking cycle will raise global bond yields, which could add pressure on expensive and volatile equity markets. “Inflation has hit multidecade highs, and growth ha shit multidecade lows,” says Renzi Thirumalai, head of investments at FNB Wealth &Investments.

And concerns about stagflation — high inflation rate coupled with slow growth —add to market anxiety. Unsurprisingly, allocations to safe-haven assets are growing in importance in diversified portfolios. “The timing and nature of market disruptions are equally unpredictable. This inherent uncertainty is why diversification should form the foundation of investment portfolio construction,” says Thirumalai. Money market funds are a popular option during volatile periods as they provide investors with liquidity and capital preservation benefits. These funds also benefit from rising interest rates. “Cash is typically used as a place to ‘park’ capital during periods of extreme pessimism or volatility,” says Erik Nel, co-portfolio manager of the Amplify SCI Strategic Income Fund .

However, as an active, high-conviction fund manager, Nel believes that cash represents a significant drag to portfolios as returns typically fail to beat inflation. “Any instrument linked to a floating rate will benefit from rising interest rates, not only money market investments. Investors looking for liquid, low-risk investments have more intelligent solutions. ”Mark Gilbert, CEO of advisory focus at NSDV, says: “While rising inflation erodes the value of cash, if investors are willing to commit some capital for about 60 months, they could achieve interest rates of up to 10% to create real returns. ”And with equity valuations at record highs, the potential for a correction creates amore compelling case for greater liquidity. “Holding liquid cash allows an invest or to exploit opportunities when other asset classes drop. ”Rising interest rate cycles typically cause gold prices to retreat, but Russia’s war has led to higher gold prices. The gold price has spiked almost 10% since the start of the year. Consequently, ratings agency Fitch revised its 2022 gold price forecast upwards from $1,700 an ounce to $1,900 an ounce.