Dynamic portfolio rebalancing with safe-haven assets

The main objective of this paper is to evaluate the role of safe-haven assets (SHAs) in enhancing the performance of an international portfolio (IP) during financial crises. The paper used daily price data from 2007 to 2024 and focused on three major financial crises: The Global Financial Crisis (GFC), the Covid-19 pandemic, and the Russia-Ukraine (RU) war. The methodology combined a Conditional Value at Risk (CVaR) optimisation with a periodic rebalancing strategy to assess the impact of including gold as the SHA on portfolio performance. The results showed that including the SHA, like gold, significantly improved portfolio performance during all three crises. Notably, portfolio performance decreased by -0.741% during the GFC, and portfolio performance decreased by -0.179% during COVID-19 when gold was included in the IP. In contrast, during the RU war, the highest portfolio value increased by 2.99% when gold was included in the IP. During the GFC, the portfolio that included gold experienced a reduced volatility of 20.589%, compared to that of a portfolio without gold, which had a volatility of 25.290%. The IP with SHAs showed a maximum drawdown, a critical measure of downside risk, of -0.38069, compared to the -0.55929 maximum drawdown of the IP without SHAs. Similar improvements were observed during the COVID-19 pandemic, where portfolio volatility decreased to 11.436%, and the highest Sharpe ratio was 0.301. The policy recommendation is that institutional investors incorporate SHAs such as gold into their portfolios. This strategy enhances portfolio resilience and reduces downside risks, ensuring better risk-adjusted returns.