SA Asks: What are the best safe havens for investors right now?

[Golden bull and bear as symbols of stock market on a smartphone with stock market data application on the screen.]
Bet_Noire

What are the best safe havens for investors right now?

In a recent Seeking Alpha readers poll, 35.7% of respondents chose dividend stocks as their preferred safe haven, with 22.2% naming gold/precious metals, 18.8% selecting cash, and 14.8% opting for U.S. Treasuries. The remaining respondents chose either corporate bonds or crypto.

Seeking Alpha readers poll on investment safe havens (Seeking Alpha)

We asked Seeking Alpha analysts Rick Orford [https://seekingalpha.com/author/rick-orford], Ragmar Rickberg, [https://seekingalpha.com/author/ragmar-rikberg] and Sandeep Rao [https://seekingalpha.com/author/sandeep-g-rao] for thier picks.

Rick Orford [https://seekingalpha.com/author/rick-orford]: Right now, the markets are very frothy. The indexes are near their all-time highs, driven by AI spending. Naturally, investors are again asking themselves, is the market about to turn? Naturally, defensive assets like gold, U.S. Treasuries, or dividend stocks help us feel better during times of market uncertainty. Should a recession actually happen, the indexes and interest rates will likely fall.

For those who prefer exposure to equities, quality dividend-growth stocks can be a safe haven during times of uncertainty. Quality dividend-growth stocks, such as those on the Dividend Aristocrats list [https://seekingalpha.com/etfs-and-funds/etf-tables/dividend_aristocrats], tend to provide a proverbial safety net as investors often think twice before selling an income-generating security, even during bouts of volatility.

Ragmar Rikberg [https://seekingalpha.com/author/ragmar-rikberg]: It’s not an easy question to answer, especially as I’m a fan of fundamentals—but in my view, companies with truly attractive fundamentals are hard to find right now. Markets seem to have run a bit ahead of themselves. Companies with low P/E ratios or other seemingly attractive multiples often have underlying issues that aren’t immediately visible.

That said, I think keeping some portion of assets in cash is not a bad idea at all. If a selloff hits, it could be sharp and fast—but it might also end just as quickly, as we saw back in April. Having cash on hand in those moments allows you to buy quality assets at better prices.

My second choice would be U.S. Treasuries or ETFs that track Treasuries. But I’d stick to maturities no longer than 5 to 7 years. Longer-term bonds carry more risk, especially in uncertain rate environments. With these, you currently get a decent yield—around 4%—and if history is any guide, all recent crises (dot-com, subprime, pandemic) have been resolved by printing money and lowering interest rates.

Since bond prices move inversely to rates, holding Treasuries or ETFs like Vanguard Total Bond Market Index Fund ETF (BND [https://seekingalpha.com/symbol/BND]) can result in capital gains in addition to dividends when rates fall. Once rates drop to 2% or lower, it might be time to gradually rotate back into equities.

Some argue Treasuries are risky because of the astronomically high U.S. debt. To lessen that fear, think of it this way: if you borrow from the same jacket, one pocket to another, you’re technically in debt to yourself, no matter how large the number is. Of course, that's not a straightforward explanation; there are foreign holders of U.S. debt, although their share has gradually declined over the years, which could actually be a positive dynamic when viewed from a certain angle.

The simplest way to illustrate this is by looking at Japan, whose public debt-to-GDP ratio hovers around 230% (U.S. has around 120-130%). By simple logic, Japan should have been insolvent decades ago. Yet it continues to function remarkably well, largely because most of its debt is held domestically—making it more of a technical issue than a real threat.

In short, I believe cash and short-term U.S. Treasuries remain the safest harbors during periods of heightened uncertainty.

Sandeep Rao [https://seekingalpha.com/author/sandeep-g-rao]: The U.S. has been in a recession for a while, albeit not definitionally. Since the global financial crisis, the U.S. government, like many others, has progressively diluted/reformulated the metrics employed as recessionary indicators. Rather than treat the word "recession" as a call to action for everyone to join hands to enact corrective action, the ongoing political discourse has made it a scarlet letter. Politicians live and die on how they're perceived, and that is particularly true for the current administration.

The revelation of the "Circular AI Deal Machine" helped accelerate the unspooling of the AI hype dominating U.S. markets for nearly two years now. Unfortunately, the involvement of semiconductor manufacturers somewhat confounds the issue since electronics are central to any modern economy now. There's a lot about the technicalities of AI models that retail investors (and indeed many professional investors) who are vocal champions of AI investments simply don't understand. If they did, there would have been more caution, and the hype wouldn't be so pronounced. Tickers aren't sports teams; there's no need to wear them as "your" team's colors.

If a recession were to be called either by the Fed or by the bulk of market conviction, cross-asset/cross-market correlations would, for a period, go to 1 (and bearish) before breaking down again. The instruments that would be less affected would likely be the classics: gold and financials. However, there is cause to be wary of financials this time since there are, to paraphrase Jamie Dimon, a bunch of trillion-dollar "cockroaches" in the private credit market.

Among gold instruments, Themes Gold Miners ETF (AUMI [https://seekingalpha.com/symbol/AUMI]) is particularly interesting, since it effectively taps into both gold prices and the conviction held in gold mining companies. Of its peers, it seems to have a slightly better historical trajectory.

If investment in the market is essential, the likes of Invesco S&P 500 Equal Weight ETF (RSP [https://seekingalpha.com/symbol/RSP]) would be an interesting choice. If/when tech deflates, it would match the rest of the market. The likes of RSP would be the optimal choice for holdings during the recessionary year (or years) before all-new convictions and bets are formed and made.

* Top Quant Dividend Stocks [https://seekingalpha.com/screeners/9408317dce-Top-Quant-Dividend-Stocks]
* Top High Dividend Yield Stocks [https://seekingalpha.com/screeners/9679329d-High-Dividend-Yield-Stocks]
* Top High Dividend Stocks [https://seekingalpha.com/screeners/9679329c-Top-Dividend-Stocks]
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