Recent market movements are challenging long-held assumptions about where investors can seek protection during periods of volatility, says Stephen Brierley, investment specialist at St. James’s Place
Heightened geopolitical tensions in the Middle East have reignited questions around the role of traditional safe haven assets, with recent market movements challenging long-held assumptions about where investors can seek protection during periods of volatility. In times of market volatility, investors shift some of their assets towards asset classes they perceive as being less impacted by the shock. These do change over time; the dollar, gold and government bonds are all examples of asset classes seen as safe havens. However, the resilience typically associated with traditional safe haven assets within a broader geopolitical climate, has been less reliable.
A core principle of portfolio construction is the inclusion of uncorrelated asset classes. This diversification helps build resilience, particularly in periods of market volatility. While portfolios should be designed to withstand short-term shocks, which are inherently unpredictable, our investment philosophy does not support reactive moves into perceived safe haven assets during or after such events.
Historically, bonds and equities have exhibited low correlation. However, in 2022 we saw both bonds and equities fall because the world was in a very high inflation environment. In a black swan event such as the covid lockdown, sell offs are generally very broad based, with nowhere to hide.
Gold is seen as a safe haven asset, but with the recent conflict in the Middle East has not behaved as such. The dollar, also seen as a safe haven asset, has strengthened somewhat recently – despite still being some way off its 2025 highs – but has been weak through the tariff volatility not providing a safety net. The only way to truly manage market volatility, is to be diversified across asset classes, currencies, styles, sectors and countries, over the long-term.
A modest shift in sentiment from emerging markets to developed markets has supported the US dollar in the short term. More broadly, currency and market movements remain difficult to predict. The tariff volatility of 2025 highlighted this clearly: despite market weakness, the dollar failed to act as a safe haven and instead weakened over the year. Whether recent strength can be sustained remains uncertain, with limited evidence to support a clear directional view. It is also important to recognise that a wide range of both risk and defensive assets are denominated in US dollars.
From a regional perspective, the US has outperformed its developed peers during the initial phase of recent volatility. Smaller companies have generally been more resilient than large caps outside the US and in emerging markets, likely due to their more domestic orientation and lower exposure to global trade and energy, although liquidity dynamics may also play a role.
At a sector level, energy has led performance, with relative resilience also seen in consumer staples, industrials, materials and utilities. Recent market moves have begun to reverse earlier valuation trends, with US equities regaining relative strength versus non-US and emerging markets. If sustained, this could see previous valuation gaps re-emerge, with the US once again outperforming other regions.
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