In the midst of market mayhem, the most popular safe haven investors seek is gold. But gold's ups and downs this year, from a high of over $1,000 to a low of under $700, have left some investors looking for a less buffeted shelter from the storm.
Alternatives range from funds focused on the currency of the most stable government in the world all the way to unmortgaged farmland.
Switzerland, with its massive financial reserves, mountainous borders, and storied banking history, is often seen as the ultimate haven.
Given the current market turmoil, investors should consider taking refuge in the CurrencyShares Swiss Franc Trust exchange-traded fund and the iShares MSCI Switzerland Index Fund, says Carl Delfeld, president of investment adviser Chartwell Partners: "They're high-quality, lower-volatility investments relative to the US market."
Safety and stability come at a cost, however. The currency fund, down just 2 per cent in 2008, invests in bank deposits denominated in Swiss francs. Trading at about 86 on Oct. 27, it currently pays interest of just 9 cents a month. So investors get the equivalent of a yield of less than 2 per cent for their hedge against a devalued dollar.
The iShares MSCI Switzerland Index Fund, down 33 per cent, represents the value of blue-chip Swiss companies such as Nestle [Get Quote], Novartis [Get Quote], and Roche Holding. It has been only about 60 per cent as volatile as the U.S. market over the past three years and should do better than the U.S. in a recession, Delfeld says.
Other investors looking for a gold alternative have ventured into silver. The lower-priced precious metal isn't included in as many of the broad commodity indexes as gold is, so it has been less affected by the wave of hedge fund liquidations. But it has been hit much harder than gold by global recession fears, since industrial users make up more of the demand for silver than they do for gold.
The iShares Silver Trust ETF is down almost 40% in 2008. With many mines closing down, particularly zinc mines that produce silver as a by-product, supply will shrink quickly, says Jim Cook, president of precious metals dealer Investment Rarities. Mines that produced a total of 150 million ounces a year have already closed.
The most bearish of investors, including money manager Marc Faber of the Gloom, Boom & Doom Report, are taking the notion of a safe haven almost literally. Along with gold bullion held in a safe deposit box, Faber mentions a farm with no mortgage as a serious suggestion. George Feiger, CEO of financial adviser Contango Capital, says advice like that sounds reasonable on the surface, but he questions whether investors can really act on it.
"Which farmland would you buy? Farmland growing corn has lost a lot of value this year. Farmland didn't do well in the Great Depression."
Faber agrees that investors will have to constantly reassess their safe-haven strategy and that the very concept of what is safe is a moving target. "What is safe today may change quickly tomorrow or next month," he says. "Nothing is 100% safe at times like this."
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