The Safest of Them All: What If Safe Assets Aren't Safe? (ft. Vincent Mortier, Group CIO of Amundi and Deputy CEO of Amundi AM)

Speaker A: Once upon a balance sheet in a kingdom built on yield, there ruled a sovereign of impeccable credit. His name was Mr. Bond. Each morning he stood before a vast mirror, not of glass, but of prices, and asked the only question that ever truly kept him awake at night.

Speaker B: Market, market on the wall. Who is the safest of them all?

Speaker A: You are, my king. For decades, the world has slept soundly on your coupons. But I must be honest with you, my king. Gold is winning the trust of men and women, drawing their gaze and their money away from you.

Speaker C: Okay, pause. That was many things. But that was not James Bond. Ha.

Speaker B: No tuxedo, no Aston Martin. Just sovereign bonds, shaken but not stirred by inflation.

Speaker C: I was fully expecting espionage. Instead, I get a fixed income king

Speaker B: with a duration problem with a special license to yield.

Speaker C: Alright, I'll let that one mature. But seriously, why is the bond market having a conversation with the market? Does the market actually think?

Speaker B: That's exactly the right question, Siri. We talk about the market like it's a single mind. Sometimes confident, other times nervous. And at times, even irrationally exuberant. But it is always right. But there is no central brain, and

Speaker C: yet it behaves like there is.

Speaker B: Exactly. Think of consciousness. It emerges from billions of neurons firing across trillions of connections. No single neuron is you, and yet, somehow you exist. The market works the same way. Billions of decisions, trillions in transactions, no one in charge. And out of all that noise, something coherent. Crisis. Adam Smith called it the invisible hand. Hegel took it further. He imagined history itself as the universe gradually becoming aware of itself through human consciousness. In that sense, the market is one of the places where that awareness shows up. Mess. Emotional, occasionally rational. Which is also why we need rules. Because invisible hands can sometimes wander.

Speaker C: So the market is basically the universe doing its own portfolio review.

Speaker B: Something like that.

Speaker C: And now, gently, can we return to Earth?

Speaker B: Sure, because here's the reality. We are living through turbulent times. Conflict in the Middle east, energy shocks, persistent inflation, central banks pulling in opposite directions, and government debt levels at record high. And in times like these, every investor ends up asking Mr. Bond's, where can I find safety? Welcome to 2050 Investors, the podcast that deciphers economic and market megatrends to meet tomorrow's challenges. I'm Coco Agbois, global head of research at Societe General. In this episode, we explore what safety really means in financial markets. We look at the fundamentals of what makes an asset safe and why safe assets have historically played such a central role in economies, markets and portfolios. From there, we challenge the premise Is safety an interesting feature of an asset, or does it emerge through diversification, allocation and judgment? Later in the episode, we speak with Vincent Mortier, Group CIO of Amundi and Deputy CEO of Amundi Asset Management, one of Europe's largest asset management company. He brings a practitioner's perspective on risk management and portfolio construction and helps us tackle the core Is safety something you buy or something you build? Let's start our investigation.

Speaker C: So Koku, this is shaping up to be a philosophical debate. Determinism versus existentialism. Spinoza against Sartre.

Speaker B: To be or to become? That is the question. Siri so yes, we'll explore some of these philosophical tensions in the first part of this episode. But before we do, we need to start with a simple what defines a safe asset? For thousands of years, one asset has survived the test of time. Gold. Civilizations that never met each other, such as the Egyptians, the Incas and many others, all independently decided that this one soft yellow metal was money.

Speaker D: Why?

Speaker C: Because it shines. And humans are irresistibly drawn to shiny things.

Speaker B: Partly, but mostly because it is scarce, durable and impossible to print. Typically you need to process 1 to 5 tons of rock to extract just a few grams of gold.

Speaker C: So a safe asset at its heart is a store of value, something that holds its purchasing power across time.

Speaker B: Correct? I love the biological metaphor here. Think of fat. Your body stores energy as fat, so it can draw on it during lean times. A safe asset does the same thing for an economy. It stores economic energy, that is Future claims on goods and services, so you can release it later. Gold has done that for 5,000 years. It's why Bitcoin's evangelists talk about digital gold, a finite, decentralized reservoir of economic energy that can be moved through time and across borders with low transaction costs.

Speaker C: And the modern version of safe assets?

Speaker B: Well, we can talk about government bonds from credit worthy states above all U.S. treasuries. The scale is genuinely difficult to picture. According to SIFMA, the U.S. treasury market stood at roughly $31 trillion outstanding in May 2026, with well over a trillion dollars changing hands on an average day. This is the deepest, most liquid pool of assets humanity has ever built. That depth is the safety you can sell in a normous position at 3am M in the morning and barely move the price.

Speaker C: This is where theory starts to oversimplify things.

Speaker B: Indeed, let's go further. The Capital Asset Pricing Model, or capm, is a foundational investment theory that describes the relationship between risk, an expected return. To understand it better Picture a ladder. The bottom step planted on solid ground is the risk free rate what you earn on a short term treasury for taking, in theory, no risk at all. Every other asset is a higher step. The higher you climb, the more you can earn, but the more the ladder shakes. Capm, um, simply says that the extra return you demand should match how much an asset adds to the wobble of the whole market. Safe assets are the low steps, low return, low volatility. Risk assets such as equities and high yield corporate credit are the high steps. More reward, more vertigo.

Speaker C: So safe and risky are, uh, really just how much does it shake?

Speaker B: In the classical view, yes. Safety is low volatility, low shake. And in Game of Thrones terms, why do we trust a Lannister bond?

Speaker C: Because a Lannister always pays his debts.

Speaker B: Precisely. Credit worthiness is reputation made. Quantitative. Full faith and credit of the US Government behind every US dollar bill is just a grander way of saying this house always pays.

Speaker C: Then explain something to me, Koku. If these are the safe assets, why is the bond market having a nervous breakdown in the mirror?

Speaker B: Well, that's because every safe asset has an Achilles heel, a kryptonite. You could say. We saw that when gold fell around 25% from its January peak near $5,600 an ounce, or bitcoin, down roughly 50% from its high. And almost all of these safe assets face the same villain. Inflation and higher interest rates. When rates rise, the value of a bond's fixed future coupons is discounted more heavily and the price falls. Gold pays you no income. So when cash and bonds suddenly do pay you something, gold's appeal fades and money walks out the door. The oil driven, um, inflation shock we've seen this year, plus a, uh, more hawkish Fed did exactly that to gold. The safe asset was safe until the environment changed.

Speaker C: So safety isn't a property of the asset, it's a property of the weather.

Speaker B: That is the whole game in one sentence. And there is a second villain, more human, known as crowding. When everyone decides the same thing is safe and piles in, they bid the price up so high that it becomes expensive and overvalued. And an expensive safe asset is a coral spring of future losses when it eventually falls.

Speaker C: This is starting to sound philosophical.

Speaker B: You read my mind, Siri. French philosopher Rene Girard. Mimetic desire. Girard said that we don't desire things because they are inherently desirable. We desire them because other people desire them. Desire is contagious. So a haven becomes crowded, not because it has become safer, but because everyone saw everyone else running to it. Charles Mackay wrote a whole book on this in 1841. Extraordinary popular delusions and the madness of crowds. Even a safe haven can fall victim to irrational exuberance. The flight to safety can itself become a bubble.

Speaker C: So the safest thing in the room becomes dangerous precisely because it's the most popular thing in the room. That's beautifully self defeating. Well done, humans.

Speaker B: Yes, it's a paradox. And I think now is a good time to talk about the Benjamins, the chadar, the doll, or simply cash. So what is cash? The supposedly safest thing? On August 15, 1971, President Nixon closed the gold window. The Nixon shock. The dollar stopped being convertible into gold. From that moment, the entire global monetary system has rested on nothing but the full faith and credit of governments. Trust and only trust. Gold was worth $35 an ounce then. It is around $4,000 an ounce today. 55 years later, gold has not increased in value. It is the dollar that lost its purchasing power via, uh, inflation.

Speaker C: And when the trust goes.

Speaker B: Well, look at weimar, Germany in 1923. People burn banknotes for heat because the paper was worth more as fuel than as money. A wheelbarrow of cash for a loaf of bread. That's what happens when trust breaks. Because safety isn't a property of the asset, it's a belief. And safety is trust.

Speaker C: Okay, so if nothing is safe by nature, gold shakes, bonds shake, cash can evaporate. Where does safety come from?

Speaker B: Good question. Well, it comes from construction. This is the great discovery of modern finance. Historically, when equities fall, high quality bonds often rise as investors flee stocks for government debt. That negative correlation means you can hold two risky things and have the portfolio shake less than either piece. One zigs, the other zags, and the bumps cancel out.

Speaker C: So safety isn't in the brick, it's in the wall.

Speaker B: Brick wall. Beautifully put, Siri. A brick wall is a portfolio of bricks. Safety emerges from diversification and from the skill of the person doing the combining. It is not a thing you own, it's a thing you build.

Speaker C: I'm going to play the cynic now. Isn't a comm portfolio also a trap? Isn't quiet exactly when humans get complacent right before they ruin everything.

Speaker B: Touche, Siri, you make another very good point. We've arrived at one of the most important points in the episode. Low volatility is not the same as low risk. Nassim Taleb, the Black Swan author, warns us never to confuse the two. Calm is Often just risk that hasn't shown up yet. The diversification you rely on works on a fatal assumption. That assets keep behaving the way they did in the past, that stocks and bonds keep zigging and zagging in opposite directions. Hyman Minsky famously stability is inherently destabilizing.

Speaker C: And in a crisis, in a crisis,

Speaker B: correlations snap to one. Everything falls together, the offsetting mechanism breaks. You are careful. You didn't put all your eggs in one basket. But it turns out all your baskets were in the same truck. And the truck hit a wall. A brick wall.

Speaker C: Ouch. So diversification can be an illusion too.

Speaker B: And here's why this happens. We build our models by looking at history to predict the future. But you lose the most money precisely when history is being made. When the rules changed mid game. As Vladimir Lenin puts it, there are decades where nothing happens, and there are weeks where decades happen. Covid was one of those weeks. The war in Ukraine, the Middle east, oil spiking, inflation roaring back, and the steady relationship between asset classes suddenly rewriting itself.

Speaker C: So a static portfolio, set it and forget it, is quietly betting that no decade will ever happen in a week.

Speaker B: Which is why safety must be dynamic, adaptive. You manage the wall as the weather changes. You don't build it once and walk away. And this is where the existentialists overtake the determinists. Spinoza would say a, uh, thing's nature is fixed. A safe asset is safe by essence. But Sartre insists that existence precedes essence. You're not handed a fixed nature. You become through your choices and actions. Safety, in that view, is never given. It is made and remade every single day.

Speaker C: Which brings us back to this profound we do what we are, but we become what we do.

Speaker B: Yes. American philosopher Will Durant reconciled him. He said, we are what we repeatedly do. Excellence, then, is not an act, but a habit. Safety isn't a possession you hold, it is a practice you perform. A discipline. A verb, not a noun.

Speaker C: Alright, but I sense a Twist. You've spent 10 minutes telling me how dangerous risk is. I suspect you're about to tell me that being too safe is dangerous too.

Speaker B: You know me too well, Siri. The biggest risk is taking no risk at all. Cash feels safe, Short term bonds feel safe. But over time, they can be the surest way to fall behind. Inflation doesn't need to be dramatic, it just needs time. 30 years is enough to cut your purchasing power in half. You end up with more money, but less purchasing power. And all the while, equities, credit, real assets and commodities were compounding. You just went there.

Speaker C: So in trying to avoid the dramatic loss, you guarantee the boring one.

Speaker B: There is an old line I love. A ship in harbor is safe, but that's not what ships are built for. Capital that never leaves the harbor, never reaches the new world. The harbor feels like safety. It is actually a very expensive form of slow surrender. Now let's bring this into the real world world and look at how a leading asset manager navigates risk, safety and opportunity. We are delighted to welcome our guests, Vincent Mortier, Group Chief Investment Officer and Deputy CEO of Amundi Asset Management.

Speaker E: Hello, Vincent.

Speaker D: Hello, Coco.

Speaker E: Thank you for joining us today. To begin with, let's look at the current market environment. I've noticed that despite geopolitical uncertainty and the sharp rise in oil and commodity prices, markets, equities, credit, bonds, even foreign exchange remain broadly resilient, almost as if defying the laws of gravity. In your view, are we seeing a form of cognitive dissonance among investors?

Speaker D: In fact, markets, and equity markets in particular, are governed by a form of rationality. Some might even call it a form of cynicism. The market's resilience stems from a combination of several factors. I shall mention three. The first, which is perhaps the most important, is the effect of accumulated experience. Companies adapt to shocks, as we have seen with COVID the war in Ukraine, US Tariff barriers, and the war in the Middle East. In fact, corporate profits continue to grow, and if problems were to arise, in the end, uh, solutions would be found through government support and intervention by central banks. And so, in a sense, wealth tends to shift from the public sector or the population as a whole, towards private companies. So the first factor is the effect of accumulated experience. Secondly, the emergence of new investment trends, which are currently linked essentially to artificial intelligence. This is undeniably a revolution. We agree on that. But as is often the case, the markets tend to take narratives quite far and get carried away. Finally, the last reason is that liquidity remains abundant at the macroeconomic level, at the micro level, and in the markets. This provides fundamental support for the markets.

Speaker E: You raise a very interesting point, Vincent. It reminds me of Pascal, who wrote the heart has its reasons, of which reasons knows nothing. Markets often follow a form of logic, even if it isn't immediately visible. Which brings me to my next question. In recent years, many have called time on the classic 60:40 portfolio. 60% equities, 40% bonds, particularly as sovereign bonds, have become less reliable as a safe haven. Even gold, after a strong rally earlier this year, has corrected by more than 25% from its peak. Bitcoin, often dubbed digital gold, is down more than 50% from its all time high. Are we in fact losing the very notion of safe assets?

Speaker D: Uh, indeed. The old paradigms are currently being re examined. And as you say, we used to talk about risk free assets which were, broadly speaking, mainly government bonds from developed countries, and on the other hand, risky assets which were shares. This approach is being called into question quite fundamentally and for good reason. Government debt and the trajectory of deficits are beginning to cause concern against the backdrop of generally weaker economic growth. Are governments really risk free after 30 years of erosion? The answer is undoubtedly no. Conversely, very high quality companies may be perceived as less risky. They are multinational, so they transcend national borders. They have very high quality balance sheets. And so I believe in the future, uh, we will see more and more companies managing to issue debt at a lower rate than that of their country of origin. This is not yet the case. There are a few examples here and there, but I think that increasingly there will be competition between governments and companies. We are also seeing the emergence of convergence between emerging and developed countries. Incidentally, I think we should talk less and less about emerging markets. It's a form of condescendence. The reality is that the financial situation, reserves, deficits and debt levels of many emerging markets are now of a much higher standard than those of most developed countries. In my view, there is also convergence in borrowing rates between those two categories of countries. As for gold, in my view, it remains a valid asset allocation because ultimately gold is not a hedge against geopolitical risk or inflation, but a hedge against the risk of monetary overexpansion. That is to say, the risk that the value of currencies will fall. And as we live in a world where there is a huge amount of money creation due to deficits, in my view, over the long term, gold would have continued to be a useful hedge to hold in portfolios. Obviously not as the main component, but the idea Is to allocate 5, 10 or 20% at most. Uh, but to come back to your point about the famous 6040 portfolio, that is 60% equities and 40% bonds. The concept still makes sense, but not to the same breakdown. Uh, ultimately adopting a diversified approach across different asset classes that behave differently makes sense, but it certainly isn't the same as having 60% in concentrated equity indices and 40% in government bonds. It's probably a slightly different approach. So we'll need to build this portfolio differently in the future.

Speaker E: Um, very insightful, Vincent. This leads to A, uh, broader reflection. Financial history is full of frameworks that eventually stop holding. But doesn't this also create a paradox? The more investors crowd into so called safe haven assets, whatever, qualify as one at a given time, the more stretched and potentially fragile those assets become.

Speaker D: Absolutely. That's an excellent point. Markets are always a bit of a seesaw. We mustn't lose sight of what constitutes a safe haven asset. It's an asset that will retain its value in the event of market volatility, but also during periods of economic recession. It is precisely this scenario that we have not yet tested in the new safe haven assets. It's quite clear to me that if we enter an economic recession, a number of shares that are currently perceived as extremely stable and therefore safe haven assets will inevitably suffer in terms of performance. So this new macroeconomic scenario is not our base case. I'm not saying we'll enter a recession tomorrow, but to establish these new safe haven assets, namely very high quality corporate bonds or shares in multinationals with excellent visibility, it seems quite clear to me that in the event of more challenging economic conditions, they too will suffer. And if the world does indeed enter a recession, we will see that government bonds will once again become attractive, uh, as central banks will inevitably intervene. We could see a return to what is known as quantitative easing, that is monetary easing, with central banks buying sovereign bonds to keep interest rates at moderate levels so as not to completely stifle growth. In fact, paradoxically, the asset that is currently and would have been in the past a safe haven, but which today is really only considered as such on the basis of government disclosures, could once again be seen as offering greater protection in the event of a crisis. This is where we mustn't throw the baby out with the bathwater. In my view, bonds still have a place in any portfolio. And I believe that in the event of a major market shock, we will still see a resurgence of interest in government bonds thanks to central bank intervention.

Speaker E: It's a very good point, Vincent. A dynamic like this feels very much like a seesaw. But holding cash no longer guarantees safety, given inflation and the, uh, steady erosion of purchasing power. So could one argue that safety isn't inherent to any asset class, but rather emerges from disciplined, well, diversified portfolio construction?

Speaker D: Yes, absolutely. Well, it depends on the time horizon. If you're saving to buy a flat in 15 days or a month's time, it's not the same as saving for your retirement. If we look at it from a perspective of, say, five to 10 years, which is a fairly standard investment horizon that allows you to take risks in a reasonable way, but take risk nonetheless. Without risk, there's no return. So over the long term, by which I mean at least five years, and preferably 10 or 15, it's clear that shares remain the most attractive investment vehicle in terms of value creation. They come with volatility. But over the long term, shares with dividends reinvested are always more attractive than other asset classes. However, given where we are today in terms of indices, now more than ever, you need to build a diversified portfolio, as the major global indices are currently heavily concentrated on the United States and the technology sector. When you buy a global index, you, uh, think you're diversified, but in fact you're not really that diversified as you're typically buying 2/3 or 3/4 of US assets, depending on the index, and a majority of technology sector stocks, which are actually quite highly correlated with one another. And in fact you're investing less in other traditional sectors and other regions. When we look at the medium term, economic growth will take place in Asia, including Japan, China, India and South Asia. And I don't think we should write off Europe, so I'd opt for a very broad equity allocation by major region. The United States, of course, as we cannot deny American leadership, but also Europe and Asia. Uh, so perhaps 1/3, 1/3, 1/3 or 40%. 30. 30. It depends on the investment horizon. But in any case, certainly not 2/3 in the U.S. or 3/4 in the U.S. that's far too much. And by adopting an approach that is less weighted by company size, what's known as weighting by market capitalization, it's better to reduce sensitivity to market capitalization. So there are various ways of doing this. There are equally weighted indices that could be a good idea. And it's also worth keeping bonds at the core of the portfolio. For example inflation linked bonds. As we don't know what the next inflation cycles will be like. One way of combating debt is to have inflation. And so an inflation linked bond portfolio may be a good idea. Finally, private assets, such as private debt, private equity, infrastructure and property also all have their place over a ten year time horizon. But here too you need to be very selective and choose your themes and fund manager carefully as performance is likely to vary considerably.

Speaker E: Okay, thank you, Vincent. So you've laid out a solid framework for building a portfolio over a 5 to 10 year horizon. How do you factor in correlation risk between asset classes? This is where things become a bit more complex. Correlations themselves are unstable. So as you hinted earlier, a portfolio that appears diversified across 10 asset classes may in reality boil down to just a couple of underlying risk factors.

Speaker D: Absolutely. You're right to mention that what is known as the correlation matrix, which remained relatively stable for quite a few years, has become very volatile. This is a new reality that must be taken into account. That's why when building a portfolio, we need to move beyond the traditional asset classes, the bond component and equity component. Some shares behave rather like bonds. Credit, particularly lower quality credit, what's known as high yield, can behave very much like shares and be highly volatile. Currencies, too, can introduce a form of volatility that needs to be taken into account. That's why, in my view, it's important to be sufficiently diversified, not only geographically, but also by sector and investment type, what are known as factors. And there's a fair amount of analysis available to break down a portfolio by factor, typically including growth, momentum and value. These are the tried and tested factors that remain fairly effective, depending on the portfolios. But this should be applied to the entire portfolio, not just the equity portion. It's also important to diversify in terms of company size. Huge companies aren't necessarily the ones that will perform best in the future. They have already performed well, and value may lie in other slightly smaller companies.

Speaker E: This is another insightful point, Vincent. Another angle worth exploring is the idea of genuinely independent sources of risk. Portfolio construction, as you described, is not just about allocation. It also requires identifying exposures that are truly orthogonal, which calls for a degree of nuance, uh, and even creativity. So to wrap up, Vincent, two quick questions. Which risk do you think markets are underestimating today? And conversely, which consensus view looks the most fragile to you?

Speaker D: Um, I'll start with a consensus. Today, it's clear that the market or investors believe that ultimately all players involved in AI will come out on top. But we know that won't be the case. Monetization is going to be more complex than anticipated for some players. That is to say, the ability to sell solutions and remain a market leader. Um, chip shortages will gradually ease and prices will no doubt return to the normal. Not to mention the acceleration we're set to see in technological innovations, typically in the field of chips. China is working on next generation chips that could completely disrupt the market, as well as what's known as bio and quantum computers, which could also completely transform the landscape. All of this will very quickly render certain investments obsolete. The market isn't factoring this risk in sufficiently. At present, all chip manufacturers have largely remained in the market side by side. M Typically, this is a sector that is bound to undergo consolidation and there will be consolidation as innovation continues. In terms of risk, I see one major one that is also linked to AI, but not exclusively so. It's cyber risks here too. They are underestimated and the disruption that can result from a cyber risk materializing can be extremely significant in terms of investor confidence in the economy, the market and regulations. If tomorrow the website of a major global player were to be hacked, I don't think the market is fully prepared for that. And on a slightly related note, because this is always linked to technology, I think we mustn't underestimate the social risks associated with the adoption of AI. We need to keep a close eye on this as AI could be extremely profitable for a number of companies, but also could lead to major inequalities in job losses, particularly amongst young people, which could result in large scale social problems with political and regulatory implications that must be taken into account.

Speaker E: These are excellent points, Vanson. And along all of these risks, I guess climate adds, uh, yet another layer of risk, particularly in terms of physical exposure, as the current heat wave in Europe reminds us. So Vincent, before we close, if you had to give investors and our listeners just one piece of advice to navigate this environment, what would it be?

Speaker D: There's just one thing which to me is obvious. Only buy what you understand. M if you don't understand a company's business model, its valuation, the technology involved and so on, it's best to steer clear. Or if a product is too complex or a country you don't understand, and so on, it's best to steer clear. So buy what you understand.

Speaker E: Thank you so much, Vincent, for joining the show. It's been very inspiring.

Speaker D: You're welcome, Koku.

Speaker E: Thank you and see you soon.

Speaker D: See you soon.

Speaker C: So safety isn't in an asset. Safety isn't even fully in the portfolio. Safety is something you do that's exactly right.

Speaker B: The whole thing is a balancing act between two ideas that sound identical and mean opposite. The return on your money and the return of your money. Safety lives in the dialectical tension between the two.

Speaker C: That's insightful. Any final words, Koku?

Speaker B: To conclude, I'll leave you with the economist and investor John Meynier. Keynes is said to have put is better to be roughly right than precisely wrong.

Speaker C: Ah, ah, I get it. In a world of false certainties dressed up as safe assets, choose roughly right and keep your hands on the wheel, humans, before AI takes over.

Speaker B: Thank you for listening to this episode of 2050 Investor. And thanks to Vincent for his insight and perspective. I hope you've enjoyed this episode on the nature of safe assets and portfolio construction. You can find the show on your regular streaming apps. If you enjoy the show, help us spread the word. Please take a minute to subscribe, review and rate it. Um, on Spotify or Apple Podcasts. See you at the next episode. While the following podcast discusses the financial markets, it does not recommend any particular investment decision. If you are unsure of the merits of any investment decision, please seek professional advice.