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Chart of the week

Safe haven sell-off highlights need for non-correlated asset classes

How safe are “safe havens”? Our chart compares the trajectories of gold and 10-year Treasuries alongside equities’ rapid descent.

March 20, 2020 | 1 minute read
  • As market volatility has become increasingly unrelenting in the past several weeks, many investors have sought shelter from the storm that is currently ravaging global equity markets.
  • Traditionally in environments like today’s, investors could turn toward safe-haven assets – U.S. Treasury securities and gold among the most common – to protect their portfolio from losses. For the early part of the equity market’s extraordinarily rapid descent into a bear market, U.S. Treasuries and gold held up well.
  • The S&P 500 has fallen nearly 30% after hitting a new all-time high on February 19. And in the ensuing approximately two weeks, for example, gold continued to climb modestly while the 10-year U.S. Treasury yield plumbed historic new lows. (Remember that bond prices rise as yields fall.)
  • As the chart highlights, however, both asset classes have begun to sustain losses along with stocks in recent weeks. Gold prices have fallen nearly 11% since March 6 whereas the 10-year yield has more than doubled since March 9 – from 0.54% to 1.18%.
  • Correlated sell-offs across many markets, as we are witnessing today and largely witnessed throughout the global financial crisis, highlight the importance of incorporating a wide range of alternative asset classes to help diversify a portfolio, particularly during periods of market stress.

The chart of the week and any accompanying data is for informational purposes only and shall not be considered an investment recommendation or promotion of FS Investments or any FS Investments fund. The chart of the week is subject to change at any time based on market or other conditions, and FS Investments and FS Investment Solutions, LLC disclaim any responsibility to update such market commentary. The chart of the week should not be relied on as investment advice, and because investment decisions for the FS Investments funds are based on numerous factors, may not be relied on as an indication of the investment intent of any FS Investments fund. None of FS Investments, its funds, FS Investment Solutions, LLC or their respective affiliates can be held responsible for any direct or incidental loss incurred as a result of any reliance on the chart of the week or other opinions expressed therein. Any discussion of past performance should not be used as an indicator of future results.

This information is educational in nature and does not constitute a financial promotion, investment advice or an inducement or incitement to participate in any product, offering or investment. FS Investments is not adopting, making a recommendation for or endorsing any investment strategy or particular security. All views, opinions and positions expressed herein are that of the author and do not necessarily reflect the views, opinions or positions of FS Investments. All opinions are subject to change without notice, and you should always obtain current information and perform due diligence before participating in any investment. FS Investments does not provide legal or tax advice and the information herein should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact any investment result. FS Investments cannot guarantee that the information herein is accurate, complete, or timely. FS Investments makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.

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