The COVID-19 pandemic has evolved from a health crisis into a severe economic crisis as countries around the world closed their economies and prevented the movement of, and interaction between, people as a means to slow the spread of the virus. The economic crisis initially led to a massive sell off in the financial markets as investors transferred risky assets into safe haven assets to protect their wealth . Consequently, COVID-19 has struck the stock markets more severely than any previous infectious disease outbreak, including the 1918 Spanish Flu .
Global financial markets have faced enormous risks during the recent outbreak of COVID-19. Stock markets in the US, for example, hit four circuit breakers in two weeks. Crude oil prices plunged to lower than $20 per barrel, a historic low since the start of the new century. More astonishing, on April 20, 2020, crude oil futures for the West Texas Intermediate (WTI), the US oil benchmark, closed at -$37.63 per barrel, an unprecedented event that will have a profound impact on practitioners and policymakers.
Unlike previous financial crises, the underlying forces behind the current crisis are more complicated than ever. The outbreak of COVID-19 has been considered a “once-in-a-century” pandemic . To contain this extremely contagious virus, countries across the world have implemented extensive measures, including the lockdown of cities and the closing of borders, which has caused a temporary economic suspension in many places. In 2003, the severe acute respiratory syndrome, better known as SARS, was estimated to cost the world between $30–100 billion . A much larger impact on the global economy is expected from the COVID-19 outbreak. It is estimated that the outbreak could cause a median economic slowdown of 6.8%, while the extreme case could fall by more than 15%. With the great uncertainty on when the virus might be fully contained, financial markets are expected to see more troubles and many related issues call for further investigation. Facing great losses, the need to search for safe-haven assets has resurfaced for both practitioners and researchers.
Safe haven assets should earn positive or, at worst, close to zero returns during financial market turmoil if they possess the qualities of a safe haven. Safe havens more valuable in this period of uncertainty. The pace and severity of investors fleeing from risky assets to safe havens raises the question: How safe are the safe haven assets?
Traditionally, precious metals (gold and silver), currencies (US dollar and Swiss franc), and US Treasuries (T-bill and T-bond) are regarded as safe havens during times of crises. Moreover, a few researchers claim that luxury assets and crypto currencies have also joined the rank of safe haven assets . However, others view cryptocurrencies as a risky asset instead of a safe haven . Therefore, it is suggested to use asset-backed cryptocurrencies, such as Tether, as a safe haven against Bitcoin during extreme market movements. Tether is the first and largest asset-backed cryptocurrency (i.e. a stablecoin). Stablecoins are cryptocurrencies that are pegged to other stable assets such as gold and traditional currencies. Therefore, stablecoins, in theory, would become as stable as the pegged assets.
The question is whether ability of safe haven assets to protect investments remains true in the current crisis. Facing unprecedented risks in the markets, people have increasing needs to find a safe haven for their investments. Given that the nature of this crisis is a combination of multiple problems, it is substantially different from all other financial crises known to us. It is therefore urgent to re-evaluate the safe-haven role of some traditional asset types, namely, gold,cryptocurrency, foreign exchange and commodities.
Searching for safe-haven assets is a timely and important issue under the current COVID-19 pandemic. The profound impact of this health crisis has caused investors all over the world to suffer great losses, and thus the demand for safe-haven assets has become even more urgent. Traditional candidates for a safe haven such as gold, cryptocurrency, forex currencies and commodities may loss some effectiveness given the nature of the current crisis. Their role as safe-haven assets must, therefore, be re-evaluated.
Due to the lack of a theoretical model, the definition of safe-haven assets can be controversial. A major perception is that safe-haven assets are uncorrelated or negatively correlated with other assets or portfolios during times of market turmoil . This definition makes sense as safe haven-assets can help investors build a portfolio that mitigates the downside market risk. From an econometric modeling point of view, we thereby need to assess the dependence between assets on left-quantiles of the return distribution. However, many of the conventional methods hardly deliver precise results simply because the task is timely demanding and sufficient observations are not available. This challenge can be addressed, however, if we only focus on the stability of left-quantiles from safe-haven assets. The idea is that the tail-quantiles should maintain a stable level for an effective safe-haven asset during the market stress period. If a safe-haven asset experiences a tail change like other assets experience, it is more likely to correlate with those assets and will lose its effectiveness.
We used a sequential monitoring procedure to detect changes in the left-quantiles of asset returns, and to assess whether a tail change in the equity index can be offset by introducing a safe-haven asset into a simple mean-variance portfolio. The sample studied covers a training period between August–December 2019 and a testing period of December 2019–March 2020. Furthermore, we calculate the cross-quantilogram between pair-wise asset returns and compare their directional predictability on left-quantiles in both normal market conditions and the COVID-19 period. The main results show that the role of safe haven becomes less effective for most of the assets considered in this paper, while gold and soybean commodity futures remain robust as safe-haven assets during this pandemic. Our empirical results suggest that gold, luxury assets and soybean commodity futures can be used as safe-haven assets during the outbreak of COVID-19. We also used the cross-quantilogram approach to check the robustness of our empirical findings. The results are generally consistent.
Our study examines the role of gold as a safe haven asset during the different phases of this COVID–19 crisis by utilizing an intraday dataset. The empirical findings show that dynamic conditional correlations (DCCs) between intraday gold and international equity returns (S&P500, Euro Stoxx 50, Nikkei 225, and China FTSE A50 indices) are negative during Phase I (December 31, 2019−March 16, 2020) of the COVID–19 pandemic, indicating that gold is a safe haven asset for these stock markets. However, gold has lost its property as a safe haven asset for these markets during Phase II (March 17−April 24, 2020). The optimal weights of gold in the portfolios of S&P500, Euro Stoxx 50, Nikkei 225 and WTI crude oil has significantly increased during Phase II, suggesting that investors have increased the optimal weights of gold as ‘flight-to-safety assets’ during the crisis period. The results also show that hedging costs have significantly increased during Phase II. The hedging effectiveness (HE) index shows that the hedge is effective for portfolios containing gold and major financial assets. Our results are robust to alternative specifications of the DCC-GARCH model.
Overall, we confirm that gold / luxury assets have an irreplaceable role in preserving the value of an investment. The strong and robust role of soybean futures is slightly surprising as it is not normally considered a strong candidate. The logic behind this once again links to the nature of the current crisis. The financial turmoil is essentially driven by the health crisis. By implementing measures to contain the virus, both the industrial and consumer sector are affected, leading to an over-supply of crude oil and also ruling out its relevance as a safe-haven asset. The locking down of cities and borders also affect international trade, and thus put the foreign exchange market into great uncertainty. The crisis, however, raises the need for agricultural products. Food security, for example, has become a major issue for many countries , which makes agricultural commodities a strong hold under the current crisis. Our findings are also in line with the literature that safe-haven assets can change over time and across countries. In addition, when searching for safe-haven assets, investors cannot ignore the underlying characteristics/driving forces of the market turmoil.
Our analysis includes the ten largest economies — the US, China, Japan, Germany, the UK, France, India, Italy, Brazil and Canada — since investors prefer to invest in these markets. We use descriptive statistics and regression with a GJR-GARCH correction to examine the performance of safe haven assets. Both methods yield similar results.
Our first finding is that gold has lost its glitter during the COVID-19 pandemic even though it was a safe haven during the GFC. Table 1 shows gold’s poor performance. The table lists the returns of safe haven assets on the days of the ten largest losses in the S&P 500 during the COVID-19 pandemic. Clearly, gold returns generally moved in tandem with the ten extreme stock market losses in the S&P 500 during the pandemic, with seven out of the ten negative gold returns. For instance, gold lost 4.90% of its value on 12 March 2020 while the S&P500 index incurred a 10% loss. The obvious question is what has happened to gold as a safe haven asset during COVID-19, when investors regarded gold as a safe haven during the GFC ? We suggest that investors might have altered their views about gold as a stable asset since they were mentally scarred by gold investments between 2011 and 2015 when gold lost 45% of its value. The usual counterpart precious metal, silver, has not functioned as a safe haven in either crisis. Investors should be careful using silver as a safe haven during market turmoil.
Our second finding is that the Swiss franc has served as a better safe haven asset than the US dollar during COVID-19 even though they were both safe havens during the GFC. As shown in Table 1, five out of the ten US dollar returns were negative, but only two Swiss franc returns were negative during the days of the ten largest losses of the S&P500 index. However, the daily returns of both the Swiss franc and US dollar varied between -1.10% and 1.58% per day during the ten extreme stock market losses, which are small variations. Therefore, they have helped protect investors’ wealth and maintained their safe haven status during COVID-19.
Our third finding is that the US Treasuries — T-bills and T-bonds — served as safe havens during both crises. As shown in Table 1, Treasuries recorded at least seven positive returns on the days of the ten largest losses in the S&P500. An interesting fact is that Treasuries have retained their status as a safe haven during COVID-19, even though the US leads the world in the highest death and infection rates. Thus, investors still view the US as a place to protect their wealth and investments during times of stock market crisis.
Cryptocurrencies comprise less than 0.7% of the world’s investments, although they attract a disproportionate amount of attention from traditional and social media. The largest cryptocurrency, Bitcoin, is even labelled as the ‘new gold’ by some media outlets. However, our findings show that investment in Bitcoin has proved to be a high-risk strategy during COVID-19. Its losses exceeded stock market losses across all of the ten largest economies in the world. As shown in Table 1, Bitcoin dropped 46.5% in value on 12 March 2020, when the S&P500 index suffered a 10% loss. Therefore, Bitcoin failed miserably in its first real test as a safe haven asset and has proved to be a highly speculative asset during COVID-19. In stark contrast, the largest asset-backed cryptocurrency, Tether, has served as a safe haven for all ten economies against stock market losses during COVID-19. Our findings on cryptocurrencies suggest that investors should prefer asset-backed cryptocurrencies over cryptocurrencies not backed by any assets.
We conclude that traditional assets such as gold and silver failed to protect investors’ wealth during days when they needed it the most. All safe haven assets are not necessarily safe by default during a stock market crisis. Therefore, investors should exercise due diligence when investing in potential safe haven assets during such a crisis. Our findings also suggest that investors prefer liquid and stable assets such as Treasuries and the Swiss franc over precious metals (i.e. gold and silver). Also, investors are willing to adopt new safe havens like luxury assets and Tether — probably because it is pegged to other financial assets. Finally, our findings suggest that media outlets, policymakers and regulatory authorities should exercise caution in classifying Bitcoin as an alternative to traditional investments. Clearly Bitcoin is not the ‘new gold’, since it lost almost half of its value in one trading day during a COVID-19 market selloff.
Inversed BETA — The coronavirus pandemic has flipped the world over and with it the fundamental nature of stock price movements.
Since equity markets hit their peak back on 20 February 2020, the underlying foundation of systematic risk in markets has somersaulted on its head. Stocks from the technology, pharmaceutical and biotech sectors, for example, used to amplify market movements — rising higher when the market went up and falling further when it declined. But in the COVID-19 market, they actually display lower volatility. At the same time, stocks that previously exhibited a dampening effect — defensive and mining stocks, say — and lagged a spiking or declining market, now have sharper ups and downs.
This shift not only inverts the relationship between risk and reward, but also has profound implications for how investors diversify their holdings and think about mitigating and minimizing portfolio risk.
In finance, the relationship between an equity’s returns and that of the overall market is measured by beta. Stocks with betas over 1.0 have greater systematic risk than the market as a whole. So if the market — here the S&P 500 — rises 1%, high beta, riskier stocks like tech, pharma, and luxury goods companies will increase by more than 1%. Conversely, if the S&P 500 drops 1%, they will fall by a greater percentage.
And yet, since the coronavirus crisis took over, these tried-and-true relationships have reversed.
We analyzed daily US equity data from 20 February to 1 June to see just how much has changed with particular sectors and the risk they pose to a portfolio.
Technology and work from home (WFH) companies in particular demonstrate just how profound a sea change has taken place. These WFH companies are featured in the Work from Home exchange-traded fund (ETF) (ticker: WFH) and include Zoom, Slack, Amazon, and DropBox, among others. Their revenues presumably expand when more people work remotely, as they have in the new locked-down world of coronavirus.
Coronavirus-Induced Beta Inversion
The beta shifts are dramatic. For instance, Zoom went from a beta of 1.82 in 2019 to -0.36 during the four-month pandemic period. What does that mean? In 2019, if the S&P 500 rose 1%, Zoom would rise 1.82% on average. Now, when the market rises 1%, Zoom declines by 0.36%.
Good news for the market is bad news for Zoom.
Betas for companies in the WFH sector have fallen across the board. Amazon’s beta of 1.33 in 2019 declined to 0.60 during the four-month sample period. Dropbox went from a beta of 1.43 last year to 0.77. All told, the average beta of WFH companies fell from 1.35 in 2019 to 0.90. And the average beta of all information technology companies has declined to 1.11 from 1.37.
And tech isn’t the only sector where volatility has dropped. The betas of pharmaceutical and biotech companies have plummeted as well. For instance, Moderna had a beta of 1.33 last year. It fell to -0.03 during the coronavirus period. Combined pharmaceutical and biotech companies have seen their average beta decline from 1.11 in 2019 to 0.81.
Finally, what about companies with negative betas? How has the COVID-19 effect impacted them? The stock prices of the rare negative beta firm move counter to the overall direction of the market, falling when the S&P 500 is on the rise, and spiking when the index declines.
Of the 285 companies with negative betas listed on the NYSE/NASDAQ last year, half were in the mining and extraction sector. Only 5% were in pharmaceuticals. This year, those numbers have completely reversed: Mining stocks compose just 5% of negative beta stocks, pharmaceuticals more than 50%.
The capital asset pricing model (CAPM) suggests the greater the beta, the greater the potential for outsized returns in the long run. The complete 180 in how companies move with the market means we have to rethink how we approach risk and returns. Safe companies may now be risky and risky companies safe.
Investors need to take note. When it’s time to rebalance our portfolios, stocks from so-called low-volatility sectors may now actually increase our risk, and vice versa.
That’s the new reality in this topsy-turvy coronavirus world.
The Coming Of Luxury — We are already being asked if we are seeing a surge of interest in investments of passion like art and classic cars.
The question isn’t unexpected. Luxury investments do have something of a safe-haven status and generally performed relatively well following the last financial crisis in 2008.
Some people are certainly hoping that will happen again .
We have just received interests promoting a new wine fund off the back of the outbreak — but the situation now is slightly different to what we went through a decade or so ago.
For a start, the physical market for luxury assets wasn’t affected then. Auction sales, which are the main benchmarks for most markets, even if they don’t always account for most sales by volume, continued and things got sold.
Today, upcoming sales are being cancelled left, right and centre so it’s harder to gauge what is actually happening. But things are moving online.
And secondly, the origins of this crisis are not based on the failings of financial markets so it is probably premature to say investors will respond in the same way.
Cash seems to be king at the moment, so if you don’t want to have your money locked up in equities, it certainly wouldn’t make sense to pile it into a far less liquid asset class like, say, art.
It is far too early to say what the impact will be on the market.
However, in the short term the sector will be affected simply because so many auctions and events have been cancelled and dealerships shut, he points out.
But prices certainly aren’t falling yet. According to the HAGI Top index, which measures the performance of the best investment-grade classic cars, prices rose by 0.55% in January and February, with no dip forecast in March and have gained substantially in June.
It is too early to say which direction the market will head, especially as the largest auction house in the sector has stopped sales.
More evidence, however, is available to allow a slightly more detailed look at the fine wine market.
A recent upturn in activity is noted from buyers in Hong Kong and China who had been almost entirely absent, for obvious reasons, from the market for most of the first quarter of the year.
Because a lot of the world’s fine wine is traded through London the drop in the value of sterling is making it cheaper for Hong Kong-based purchasers because their currency is pegged to the US dollar.
Again though, it would be premature to speculate on how Covid 19 will affect the wider market. A potentially bigger impact will be how the ongoing US/EU trade spat plays out.
The spring art market has also been curtailed
It’s still too early to say how auction houses might be impacted by the loss of business but judging by last week’s sales at Christie’s and Sotheby’s interest was far down on this time last year.
In short, to answer the question we just don’t know yet whether the Covid 19 virus will prompt people to look to luxury as a way to protect their money, or whether the crisis will hit values as collectors liquidate their assets.
Prices seem to be holding up, as indicated by the Q1 results for KFLII published in April, give an healthy indication of market performance. However, it will take longer to clarify if it is Covid 19 or other market factors that are driving performance one way or another.
Revenge Shopping In Luxury
Revenge shopping. Have you ever heard this phrase? I bet you have not but it’s one of the unique things to come out of China recently. According to a recent article in the Hong Kong-based South China Morning Post, the post-Covid opening up of retail in Chinese cities has seen a surge of ‘revenge shopping’, especially in luxury stores. One store of French chain Hermès had sales of $ 2.9 million on the first day after it reopened. Now, people are wondering whether ‘revenge shopping’ will spread to ..
The Economic Fallout: Consumer Spending Post-COVID
The economic repercussions of the COVID-19 crisis are still unfolding. Consumers are understandably concerned about their financial futures. Though the latest job numbers offer a glimmer of hope for some industries, the experts agree: the world is in a recession, and we’re not out of the woods yet. Facing increased economic pressure, a greater number of consumers on tight budgets will likely find their decision-making and purchasing behavior impacted going forward.
In addition to the current economic impact, consumers are worried about a second wave of the virus and the extent to which that could further impact the economy. With all these concerns in mind, we have taken a look at the trends we’ve seen over the past few months, and predictions as to what we may see in the future, to help investors , retailers and brands plan for upcoming consumer behavior and spending patterns.
Economy is a Top Consumer Concern
Though shoppers miss in-person social interactions with friends and family and worry about contracting the Coronavirus, 62% of those surveyed listed the economic fallout from the COVID-19 crisis as one of their biggest concerns. This is for good reason, as over 44 million unemployment claims have been filed since mid-march. Low income and other vulnerable groups are particularly concerned about whether they’ll receive financial assistance, and the concern is spreading into middle and upper income brackets as well.
Stimulus Checks Boost Non-Essentials Spending
Prior to the initial stimulus payout, most consumers expecting a stimulus check from the federal government said they planned to use the funds to pay bills, bolster their savings, or purchase essentials. But once the first wave of checks went out, we saw non-essential items capture a surprising share of spending, though this varied among income levels.
Electronics and office supplies saw a surge, possibly due to people improving their home environment in preparation of sheltering and working from home. There was also a boost in baby items, particularly among low income consumers, indicating a desire to stock up on family supplies since they had the funds to do so.
Budget-Driven Retailers Gain Over Quality-Driven Stores
While we anticipated the first wave of shoppers financially impacted by the crisis would be lower income, we’re now finding middle income consumers have also been affected, a trend that will only continue as larger corporations and professional services are forced to furlough or layoff employees. These shoppers have already begun to shift their spending to budget-friendly retailers and dollar stores.
This means quality-driven stores featuring natural, organic, and premium products are likely to lose consumers who are tightening their pocketbooks. This is typical behavior during a recession. Manufacturers invested in premium chains may want to consider adjusting their marketing in order to reach and appeal to consumers during this time, while retailers focused on premium assortments should prepare to offer more budget-friendly options in order to retain their shoppers.
Consumers Will Continue Stocking Up
As anxiety over a second wave of COVID-19 infections increases, pantry stocking remains critical to consumers. Over 50% of shoppers surveyed said they intend to continue stocking up even after the pandemic ends or in preparation of another wave. We’re starting to see a gradual rise in stockpiling, as this behavior has become more normal, and we expect a potential second wave to be driven more by individuals already affected by the recession.
Consumer sentiment and behavior continue to reflect the uncertainty of the COVID-19 crisis
Consumer behaviors are settling into a new normal, as people everywhere learn to live with the reality of COVID-19 and as more countries reopen parts of their economies. Although the pandemic’s impact has varied across regions, five themes have become evident among consumers across the globe:
- Shift to value and essentials
- Flight to digital and omnichannel
- Shock to loyalty
- Health and “caring” economy
- Homebody economy
While these themes hold true across the 45 countries we have tracked through the crisis , the following exhibits focus on a subset of 12 core countries, selected because of their economic significance and the impact that COVID-19 has had on their populations.
1. Shift to value and essentials
Even as some countries have reopened, many consumers globally are continuing to see their incomes fall. And they aren’t feeling too optimistic about their countries’ economic outlook. In most countries, confidence about economic recovery has dipped slightly since early April. Consumers in China and India remain more optimistic than their counterparts in the rest of Asia, Europe, or the United States (Exhibit 1).
With many people expecting COVID-19 to negatively affect their finances as well as their daily routines for at least another four months, consumers are being mindful about their spending and trading down to less expensive products (Exhibit 2).
As consumers hunker down for a prolonged period of financial uncertainty, they intend to continue shifting their spending largely to essentials, such as grocery and household supplies, and cutting back on most discretionary categories. While purchase intent is increasing on a large set of categories since we first measured it at the end of March, outside China it remains weak in discretionary categories such as apparel, footwear, and travel (Exhibit 3).
Consumers in China, India, and Korea are reporting positive spending intent in the next two weeks, on a broader range of categories, including food takeout and delivery, snacks, skin care and makeup, non-food child products, fitness and wellness, and gasoline.
2. Flight to digital and omnichannel
Most categories have seen more than 10 percent growth in their online customer base during the pandemic (Exhibit 4) and many consumers say they plan to continue shopping online even when brick-and-mortar stores reopen. In markets that had moderate online conversion rates before the pandemic, such as the United Kingdom and the United States, e-commerce continues to grow across all product categories. In markets like China with a high rate of online shopping before the pandemic, although total consumer participation in online shopping is not expected to go up substantially, the share of wallet spent online is expected to increase.
In addition to e-commerce, other digital and contactless services-including curbside pickup, delivery, and drive-through service-are also seeing much higher adoption rates. While some of these habits are seen as a work-around to the crisis, many at-home solutions to regular activities will likely be adopted for the long-term.
3. Shock to loyalty
For certain products and brands, COVID-19 caused supply-chain disruptions. And when consumers couldn’t find their preferred product at their preferred retailer, they changed their shopping behavior: many consumers have tried a different brand or shopped at a different retailer during the crisis. Value, availability, and quality or organic products were the main drivers for consumers trying a different brand (Exhibit 5).
Our research shows that in China, and the United States, more than 75 percent of consumers reported trying a shopping method while in Japan, where lockdowns weren’t imposed, the comparative number is only 33 percent. We expect these changes will shape consumers’ habits even beyond the effects of COVID-19. In China and the US, upward of 60 percent of consumers who tried a new behavior plan to stick with it post-crisis.
4. Health and “caring” economy
Across countries, survey respondents say that when deciding where to shop, they look for retailers with visible safety measures such as enhanced cleaning and physical barriers. In addition, they buy more from companies and brands that have healthy and hygienic packaging and demonstrate care and concern for employees (Exhibit 6).
During these trying times, consumers have a heightened awareness of how businesses interact with stakeholders, local communities, and society more broadly. The actions that businesses take during this pandemic are likely to be remembered long after COVID-19 has been conquered.
5. Homebody economy
In most countries, more than 70 percent of survey respondents don’t yet feel comfortable resuming their “normal” out-of-home activities. For more than three-quarters of consumers who adjust their behaviors due to the health crisis, the easing of government restrictions won’t be enough. Instead, they’ll wait for guidance from medical authorities, reassurance that safety measures are in place, and the development of a COVID-19 vaccine and/or treatments.
Consumers do plan to resume some of their out-of-home activities soon, and shopping is first on the list. Large events and air travel, on the other hand, are last on the list (Exhibit 7).
Asset Allocation during COVID19
At this juncture, it is pertinent to mix assets prudently in order to mitigate the downside risks.
Empirical studies revealed that markets tend to move in cycles. Also, assets behave differently in different market cycles. For each asset, however, a mean-reverting stochastic process is discernible. This means that assets tend to diverge from and revert to their fair prices over time. This makes a compelling case for asset rotation.
Besides mitigating downside risks, asset rotation augments the probability of Alpha. A study attributes 91.50% of the portfolio performance to asset allocation. In this study, individual stock selection and market timing accounted for a paltry 7% of portfolio return.
Commensurate with your risk appetite and goal proximity, a portfolio is constructed by mixing heterogeneous assets like equity, debt, gold, REITs (Real Estate Investment Trust) , InvITs (Infrastructure Investment Trusts), etc. A diversified portfolio comprises of assets that exhibit low correlations. Besides construction, portfolio rebalancing is pivotal in order to achieve optimal outcomes. Rebalancing is warranted if there is a portfolio drift from the threshold.
Ironically, behavioral biases distort investment decisions. Our ingrained gut instincts of fear and greed helped us become evolutionary winners. However, survival instincts distort investment decisions. Warren Buffet said, “Be fearful when others are greedy and be greedy when others are fearful.” Investors seldom follow this cardinal tenet and burn fingers by taking the contrary position. They tend to resort to panic selling when markets become choppy because we fear losses more than we value gains. Such an irrational conservatism entails huge opportunity cost due to potential investment gains foregone. Ostensibly, it looks difficult to fix the innate biases as they are hard-wired into us.
To fix this asymmetrical condition, it will be prudent to employ processes that dynamically recalibrates asset allocation while keeping emotions/sentiments at bay. The calibration triggers emanate from a quantitative model.
The model helps in efficiently capturing the upside while simultaneously protecting the downside. We suggest Dynamic Asset Allocation or Balanced Advantage Funds that work on the aforementioned principle. Besides Equity and Debt, we suggest exposure in Gold & Luxury .
At a time when the equity market is in turmoil due to Covid-19 pandemic, safe haven asset like Gold and luxury assets retain their lustre as a store of value.