For City traders digesting the news via their terminals today, the language had a constant ring.
“Swiss franc leaps as investors seek havens,” screamed one story. “Investors poured into perceived safe-haven assets, driving gold to a record high,” stated another, before adding: “US government bonds failed to benefit from their usual safe-haven status after the weekend breakdown in talks fuelled investor anxiety over treasury holdings.”
It is a small sample but the message seems clear. Spooked investors, unsure of where to put their cash, are looking for places where they can be confident it will not suddenly vanish. So what are the safest investments – and can they really be risk-free?
Swiss franc
Sometimes you can look desirable just because the weaknesses of those around you are so stark. That was true of successors to Robert Green in the England goal, and it is now proving to be the case with the Swiss franc, which has appreciated by about 15% against the dollar this year. While some argue that the Swiss National Bank (SNB) will have to step in, others believe it is powerless to dampen demand.
In a research note, Simon Smith, chief economist at the foreign exchange specialists FXPro, wrote: “Switzerland is not the only country in decent fiscal shape but, apart from the Aussie dollar, it is the most liquid alternative to the US dollar, euro, yen and sterling, all of which have sovereign fiscal issues to varying degrees. Furthermore, the SNB could once again find itself pretty helpless in terms of trying to fight this strength, should this aversion to countries with sustained deficits really take hold.
“Intervention is an option but, despite the increased reserve levels and balance sheet position (around 55% in euros, from over 70% last year), it could well be a futile one.”
Gold
Gold is always considered the ultimate safe haven, and it has so far served investors brilliantly during this downturn – rising 16% during 2011. Silver has performed even better, up 30%, despite a crazy period in the spring when margin calls (when an investor has to deposit more cash or securities to cover possible losses) were increased four times in six weeks as regulators feared that speculators were driving the price too high.
The consensus among analysts is that both metals will continue to rise, although there are some famous names who strongly disagree. George Soros, the financier who “broke the Bank of England”, is a gold bear. “The ultimate bubble is gold,” he said in May. “Gold has shown tendencies to go parabolic, and usually bubbles tend to end in that parabolic rise before the collapse.”
Premium bonds
Another perennial safe bet, but are they worth it? According to the Premium Bond calculator on the financial website Moneysavingexpert.com, an investor enjoying average luck and punting £30,000 would expect to win £400 over one year – or a return of 1.3%. That comes tax free, so is equivalent to a 2.2% return at the 40% rate. In normal financial times, that would not appear stellar. But, with interest rates at 0.5%, it suddenly does not look too shabby.
Fine wine and art
Your typical City wine investor delights in boring acquaintances about how he drinks for free by buying two cases of young wine and leaving them to mature, before quaffing one and selling the other to finance his purchase. The brag is almost always nonsense but there are those around who reckon that wine can deliver decent investment returns. The Wine Investment Fund, which asks investors for a minimum £10,000 commitment, says it has paid out annualised returns of upwards of 13% on its portfolios between 2003 and 2006, while 2009 punters are enjoying a vintage year with many showing profits of more than 20%. Even 2010 investors currently have profits upwards of 8%.
However, there are those who believe that this cannot last. “Historically wine has had a good run, but there is a feeling it is getting near the end of the bubble,” said one City trader. “Every man and his dog seems to be cropping up as a wine broker. And unlike gold and stocks, if the price starts to fall you might struggle to get out as it’s not the most liquid asset, if you forgive the pun.”
Yes, very droll. Equally, art is not an easily sold asset but it is also touted as another area for nervous investors. “The idea of contemporary art as a safe haven is a joke,” said the entrepreneur Luke Johnson. “It is particularly illiquid, transaction costs are enormous, there is clearly no income and capital growth prospects are at best uncertain.”
A number of art funds fell over during the downturn, but the Fine Art Fund Group, which has a base level $250,000 (£153,000) investment, is still around and boasts annualised returns in excess of 25% in its two main funds.
Still, in a world where everybody talks up their own book, it may be worth noting a quote frequently (but dubiously) attributed to Pablo Picasso: “I’m a joker who has understood his epoch and has extracted all he possibly could from the stupidity, greed and vanity of his contemporaries.” Maybe not a screaming buy, then.
High-yielding stocks
Can high-yielding equities suddenly be a safe haven? UK shareholders have received their largest dividend payouts since the collapse of Lehman Brothers in 2008, with companies returning £19.1bn to shareholders in the three months to July – a 27% increase on the same period last year, according to Capita Registrars.
However, investing for the income might still put your capital at risk. David Jones, chief market strategist at IG Index, said: “The stock market has been going up for two and a half years and might be fully valued. You may get the dividend, but possibly not the capital appreciation.”
The mattress
If you invested in the stock market 11 years ago, you are still waiting for a return. And with interest rates at 0.5% for more than two years, leaving your cash in the bank has not proved to be a massively profitable option. Sticking your funds under the bed might be one approach and it is similar to one adopted by many companies, which are now reluctant to lend their spare funds in the wholesale money markets.
Louise Cooper, market analyst at BGC Partners, said: “For some risk-averse companies, it may be better just to keep the cash inside the company and earn nothing on it, rather than lend it out for a minimal return, with degrees of risk currently being replaced with fear of the ultimate risk.”
So should private investors follow suit and simply stuff their wads under the mattress? “It’s an option,” admitted one frustrated City analyst. A word of caution, though: if the house goes up in smoke, the insurance will only pay out on £500 or so of burnt notes.