Top safe-haven investments to consider to shelter investment portfolios from the conflict in Middle East

Rob Morgan, Chief Investment Analyst at Charles Stanley Direct, part of Raymond James Wealth Management shares his top safe-haven investments to consider to shelter investment portfolios from the conflict in Middle East:

Energy shock havens

If you are investing for the long term with a diversified investment approach, the best course of action during market volatility is usually to sit tight. Market timing – especially during geopolitical crises – is notoriously difficult. Unless your portfolio is heavily concentrated in a single sector or region, the ups and downs should be manageable.

There aren’t many hiding places from an energy shock of this nature. It tends to be bad for both equities and bonds. Equities owing to concerns of lower growth, and bonds because of the effect of higher inflation and interest rates.

Some areas that could help diversify and stabilise a portfolio include short-term bonds, gold, and energy stocks, though on days of extreme stress even these see some volatility. During market turmoil, traditional  ‘safe haven’ or contrarian assets can also go into reverse as reactionary investors sell whatever they can to make up for losses elsewhere.

Short-term bonds, high-quality bonds & money market funds

While medium and longer dated debt can be highly sensitive to inflation and interest rate expectations, short-dated debt closer to maturity can be a relative sanctuary. High quality bonds also will be less affected by any credit concerns. Rather like cash they can add some ballast to a portfolio.

Money market funds in particular can be a good proxy for cash in portfolios to provide a return close to Bank of England base rate. There is some risk involved as there is a very small chance that one or a number of underlying deposit or short-term loan assets are not made whole if an issuer goes bust. But that would take a very extreme event.

Gold

Gold’s record as a haven asset is somewhat chequered. Sometimes it does well in times of crisis, but it can also be buffeted by volatility during particularly acute periods of market stress. Often, there is strength in the US dollar during these times as cash becomes king and gold plays second fiddle. Nonetheless, for those prepared to commit to the longer term it’s worth having a bit of gold to guard against inflationary concerns taking off.

Energy stocks

When the oil price is in the driving seat there aren’t many sectors that perform well. Energy is the one area that directly benefits from elevated energy prices, though the impact depends on the longevity of the uplift. A spike and subsequent return to lower prices won’t have much impact on energy company profits, but a more prolonged period of higher prices will. As such a position in the energy sector could be a good hedge against crisis dragging on, resulting in a more structural change in supply/demand dynamics.

Charles Stanley Direct research also found that 43% of USNewsRanks are looking to increase their exposure to energy, while the same number (43%) are looking to increase their exposure to technology. Other key areas investors are looking to increase their exposure to include AI (42%), defense (41%), and Gold (41%).

There are also those looking to reduce exposure to certain asset classes. Airlines (19%), luxury stocks (18%), and oil (15%) are the top assets where investors are looking to reduce their exposure, making sure they are taking the right level of risk with these in their portfolios.

Investments USNewsRanks are looking to increase or decrease exposure to following the recent conflict in the Middle East:

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