。 MULTI-ASSET ● GLOBAL24 January 20192Investors could be doubtful about the ability of sovereign bonds, and US Treasuries inparticular, to protect portfolios after the moves we’ve seen in 2018. The correlation betweenbonds and equities is unstable (See Bond-equity correlation asymmetry, 16 July 2018) and canhurt multi-asset strategies rather than protect them. The USD bull run has also impacted thebehaviour of other traditional safe havens like gold, JPY and CHF. Still, the sharp market movesin 2018 after a long period of low volatility have refocused investor attention on the need forsafe-haven assets in multi-asset portfolios.Being a “safe haven” is an unstable property for an asset. Having a framework which enablesus to choose safe-haven assets that fit the current market context might therefore be useful. Inthis section, we clarify the definition of safe haven, and identify candidates for this role. We usea mean variance approach to choose safe havens (details in the Appendix), and conclude that1-3Y USTs are the best safe haven for balanced portfolios in the current market context. Thisholds true for both USD- and EUR-based investors.Seeking shelterHedge or havenThere is sometimes a confusion between a hedge and a safe-haven asset. The reason is thatcertain safe-haven assets can be used as a hedge and vice versa under differentcircumstances. A safe-haven asset can be defined as an asset which holds or increases itsvalue during periods of market turmoil and economic uncertainty.To be more precise: “A hedge is defined as an asset that is uncorrelated or negativelycorrelated with another asset or a portfolio on average. A safe haven is defined as an assetthat is uncorrelated or negatively correlated with another asset or portfolio in times of marketstress or turmoil.” 1 A hedge and a safe haven are considered as “strong” when the correlation isnegative and “weak” otherwise. Safe haven is a property linked to certain circumstanceswhereas hedge is a sustained characteristic.______________________________________1 Is Gold a hedge or a safe haven An analysis of stocks, bonds and gold, Dirk G. Baur and Brian M. Lucey, The FinancialReview (2010)Choosing a haven At a time of market turbulence and rising volatility, we revisit theconcept of safe-haven assets We simulate the risk-return characteristics of millions of portfolios toidentify the best safe-haven assetWe find short-dated US Treasuries to be better havens than the JPY,CHF or gold 3MULTI-ASSET ● GLOBAL24 January 2019 The specific property of a safe haven is the non-positivecorrelation with a portfolio in extreme market conditionsBaur and Lucey, 20101A temporary propertyThe definition of safe haven highlights two important characteristics: it’s a relative relationshipand a temporary property. An asset can be a safe haven during a certain period of time andthen lose this characteristic. The circumstances which lead to extreme market conditions alsohave an impact. Investors are ambiguity averse2 and academic studies show that when theyreceive ambiguous signals during periods of market turmoil, gold is the preferred safe haven.When faced with extreme but unambiguous signals, investors prefer US Treasuries3. Investorchoice is therefore a function of the context of the sell-off. Hence the reason why we try toidentify safe-haven assets that suit the current market environment.The best safe haven in times of rising volatilityPhases of strong economic uncertainty and market turmoil impact several risk assets withdifferent magnitudes, which can be used as signals. We choose the US equities (S&P 500) as aclassic risk asset in a balanced portfolio and the VIX as the signal to define phases of marketstress. While cash can now be regarded as a haven for USD-based investors, for our analysiswe focussed on a fully invested balanced portfolio which doesn’t include money-marketinstruments.Typical safe havens include US Treasuries, the JPY, gold, and the CHF (see the Appendix forwhy we picked these assets). Over 2010-2016, many of these safe havens generated strongerreturns when equity volatility was high. Charts 3-4 show that between 2010 and 2016, as theVIX rose, these safe havens performed better on a risk-adjusted basis through greater risk- return ratios, as well as higher hit ratios4. 3. Risk return ratio conditional to VIX levelover 2010-16… 4. Hit ratio conditional on VIX levels over2010-163Source: HSBC, Refinitiv DatastreamSource: HSBC, Refinitiv Datastream Note: data filtered for various levels of VIX 2010-2016; US Treasuries are calculatedon a total return basis.Note: data filtered for various levels of VIX 2010-2016; US Treasuries are calculated on a total return basis.At first glance, it may appear that short-end US Treasuries might not act as an effective safehaven anymore, as yields have crept higher in the last three years mainly as a consequence ofthe Fed hiking rates. Additionally, the historically low level of yield may limit the total returnpotential of treasuries during market turmoil. ______________________________________2 Ellsberg (1961) demonstrated that seemingly rational people tend to irrationally avoid ambiguity. Also known as theEllsberg Paradox.3 Safe haven assets and investors behaviour under uncertainty, Dirk G. Baur and Thomas K.J. McDermott, UTS (2012)4 The frequency with which assets generate a positive weekly return MULTI-ASSET ● GLOBAL24 January 20194However, in fact our analysis shows the opposite: a more recent period suggests that it isshort-end USTs that stand out as one of the best safe havens. Charts 5-6 show that, since2016, short-end USTs have had the highest risk-return ratios and highest hit ratios when theVIX rises. This is surprising given how short-end USTs have largely sold-off since 2017. 5. Risk-return ratios since 20166. Hit ratios since 2016Source: HSBC, Refinitiv DatastreamSource: HSBC, Refinitiv Datastream Note: data filtered for various levels of VIX since 2016; US Treasuries are calculatedon a total return basis.Note: data filtered for various levels of VIX since 2016; US Treasuries are calculated on a total return basis.Charts 5 and 6 imply that USTs and JPY have been the best safe-haven assets since 2016. Yetthis approach might be too simplistic. To find our favoured safe haven for recent conditions, wedecided to take a deeper dive into the data and look for the asset which maximises the risk- adjusted return during periods of market turmoil. By taking a mean-variance approach, we ran 10 million simulations across various assetgroupings to determine a relative preference. Our analysis covered four typical safe havens:gold, US Treasuries (USTs), the JPY, and the CHF. Again, we found short-end USTs to be thebest safe haven, followed by the JPY.MethodologyWe analysed safe-haven characteristics of gold, US Treasuries (USTs), the JPY, and the CHF.To begin to gauge a relative preference between these assets, we analysed portfolios thatincluded equities, and two safe havens. Then we followed a number of steps (for more detailson methodology see the Appendices):1. We filtered the data for periods when the VIX has been above 20 since mid-2017. We thenfound the mean and standard deviation of each asset’s returns 2. Using these statistical characteristics, we ran 10 million simulations that varied theweightings of the assets. 3. We plotted the return and volatility for each hypothetical portfolio. 4. Having run the simulations and plotted the resulting mean-variance scatter diagrams, weassessed which of the two safe havens analysed acted as the better safe haven. 。。。。。。