Amidst a recent escalation in geopolitical tensions in the Middle East and following a year of positive returns across most asset classes, investors are increasingly looking for safe havens to hedge against downside and upside risks.
Beatriz Hernández, associate funds analyst at Spanish independent manager atl Capital, talks to Eugenia Jiménez about the hedges she uses against risks such as market uncertainty and increased volatility.
Hernández believes that government bonds can play an efficient safe haven role given their low correlation with equity market indexes. She says: "2019 has been an incredibly good year for all kind of assets, especially equity-like ones and we must be aware that it is very unlikely to see the same return for the coming years.
We think they can be a good safe-asset when investors suffer with market downturns."
"Given that, our asset allocation in equity assets is slightly under our neutral position but we still think that equities can provide investors with positive results if short term risks as of Brexit, Trade War or Middle East controversies dispel."
The Spanish funds analyst continues outlining how at her firm they have been taking into account government bonds when carrying out their asset allocation, given their low correlation with equity market indexes.
Hernández says: "We think they can be a good safe-asset when investors suffer with market downturns.
"This was the case for last quarter 2018, whilst main equity indexes lost between -11% and -14%, fixed income Euro Government and US Treasury performed well. The same happened in August last year, when equity markets went down by 1 and 2% but fixed income government index had a positive return."
