Contrary to the old adage, when it comes to investing, desperate times do not necessarily call for desperate measures. In fact, far from it. Ensuring that a portfolio is sensibly allocated and diversified should help to mitigate the adverse effects of political or economic shocks such that the knee-jerk reaction to get out of the market can be resisted: an ‘All-Weather’ strategy.
 
When constructing multi-asset portfolios for DFMs and advisory firms, our process at Elston begins with four primary categories: equities, fixed income, cash & equivalents, and alternatives. We classify any investment that falls outside the first three groups as an alternative. The fundamental motivation for including this category is diversification so it is essential that we verify that the holdings in question are actually fulfilling that role.

Defining the alternatives space for All-Weather investors
Historically, property has been the dominant choice for advisory firms seeking alternative exposure. This often comes about because of the way in which it fits specific risk profiling or asset allocation models used. Unfortunately, these frameworks are in many cases restricted in terms of the number of distinct asset types they can effectively model, so the full breadth of opportunity is missed.
 
To drill down, we would start by dividing the alternatives universe into two distinct categories:

1. Alternative assets (“Different Things”): This includes tangible or specialized exposures like infrastructure, gold, commodities, and property. We make a clear distinction between physical property and property securities. While they share similar economic drivers over the long term, they offer different trade-offs regarding liquidity and reported volatility—the latter often being a result of how frequently they are valued.
2. Alternative strategies (“Doing Things Differently”): This refers to investment methods rather than just the underlying assets. Absolute return funds, for instance, might hold traditional stocks or bonds but apply risk management overlays to target a specific performance hurdle and mitigate losses. Risk-weighted and long-short equity models also sit within this bracket.

Essential factors for sizing an allocation
When building an alternatives allocation to sit alongside the broader All-Weather portfolio, three criteria are vital:

• Return contribution: ideally, these holdings should offer returns that meet or exceed the performance of the equity, bond, and cash mix for a given risk level.
• Risk contribution: the volatility added by these assets should ideally be comparable to, or lower than, the rest of the portfolio.
• Correlation structure: this is perhaps the most critical yet complex metric. If a selection of "alternative" holdings behaves exactly like the equity or bond components during a market shift, they offer diversification in name only. For true benefit, they must exhibit low or zero correlation with traditional assets. Modern portfolio theory shows that integrating uncorrelated assets allows the total portfolio risk to be lower than the sum of its individual parts—the classic "free lunch" of investing.

An adaptive strategy
Because we define our multi-asset models by their equity risk, we place Alternatives within the “non-equity” portion of the strategy. Investment approaches vary; some managers avoid Alternatives entirely, which proved challenging during the decade of near-zero interest rates when bonds struggled. Others maintain fixed weightings, which suits a static strategic view. However, we prefer an adaptive model that shifts the balance between Bonds and Alternatives based on the prevailing outlook for inflation and interest rates.
 
When rates and inflation are climbing, tilting toward Alternatives as part of an All-Weather strategy is prudent. As inflation cools and interest rates begin to pivot, increasing the bond weighting at the expense of Alternatives often becomes more attractive. Ultimately, the specific mix within the Alternatives sleeve remains flexible, guided by expected returns, risk, and - most importantly - how well those assets decouple from the rest of the market.

The ‘global savings grab’ – demand for capital is rising.

​JP Morgan’s Chief Market Strategist (EMEA) Karen Ward challenged the common narrative that markets are disconnected from reality. At a time when geopolitics feels increasingly unstable and headlines suggest disorder, equity markets continue to push higher. Rather than viewing this as complacency, or rabbit-in-the-headlights, she framed it as entirely rational.
 
The reason she gave is simple: chaos is driving spending and spending is driving growth.
 
Three structural forces underpin this dynamic. First, governments globally are stepping up fiscal spending in response to a more fragmented world order. Defence budgets are rising, energy independence is becoming a priority, and investment in domestic infrastructure is accelerating. Second, corporates are entering a new investment cycle, particularly in technology. AI is no longer a distant theme - it is triggering significant capital expenditure as firms race to build, adopt, and monetise new capabilities. Third, while consumers remain cautious post-pandemic, their balance sheets are strong. Elevated savings and lower debt levels provide a latent source of demand.
 
Together, these forces represent a meaningful shift in the global economic regime. We are moving away from the “global savings glut” - a world defined by excess capital and limited demand - towards what Ward described as a “global savings grab.” In this new environment, capital is in demand. Governments, companies, and economies are all competing for it.
 
For investors, this is a fundamental change. When demand for capital rises, so does the return on that capital.
 
This has important implications across asset classes. In fixed income, the opportunity set is back after a decade of suppressed yields. Governments are issuing more debt, but investors can now demand higher compensation. Nonetheless, selectivity remains critical - not all borrowers will deploy capital efficiently.
 
Looking at equities, the dominance of the US - now comprising roughly 65% of global indices - may not persist in the same way. Over the past 15 years, global capital has flowed disproportionately into US assets, particularly large-cap technology stocks. But as spending broadens geographically, so too should growth and earnings opportunities. The next decade is unlikely to mirror the last.
 
Technology remains central, but we are entering a more complex phase. The AI story is shifting from creation to adoption - from building the technology to figuring out how it is used and monetised. This stage introduces uncertainty, competition, and dispersion in outcomes. The key question is no longer whether AI will transform industries, but which companies will ultimately capture the value.
 
The overarching takeaway is clear: we are in an environment that rewards active decision-making. The combination of higher demand for capital, broader growth drivers, and shifting global dynamics create a richer but more complex opportunity set.
 
Paradoxically, the more uncertain the world becomes, the more opportunities it creates for investors who are willing to be selective.

The world is gradually moving towards currency diversification.

At the recent HSBC Global Summit in Hong Kong, Harvard professor and former International Monetary Fund (IMF) chief economist Kenneth Rogoff argued that while the dollar remains the primary global currency, its status as number one is beginning to look more fragile. The question is not so much whether the world will continue to use the dollar, but whether countries are becoming more determined to reduce their dependence on it.
 
For decades, the dollar has been both the world’s reserve currency and the backbone of global trade, debt and payments. Yet Rogoff suggested that what has historically underpinned that position was not simply economic strength, but trust: trust in US institutions, in the rule of law, and in America’s willingness to provide global stability.
 
That trust, he argued, is being tested.
 
Recent geopolitical tensions, from the Middle East to the prospect of a more fragmented global order, are accelerating a shift that was already underway. Rather than a sudden collapse in dollar dominance, the world is moving gradually towards diversification. Countries are increasingly uncomfortable with having “all their eggs in one basket”.
 
China is building alternatives to the dollar system through payment networks, swap lines and increased use of the renminbi in trade. Europe, meanwhile, is once again exploring how to give the euro a larger international role. Rogoff noted that the eurozone saga in the wake of the financial crisis was not inevitable; it was as much about political choices and events as economics.
 
The discussion also highlighted an important distinction: dollar dominance is not the same thing as dollar valuation.
 
Rogoff believes the dollar itself is overvalued, comparing today’s position to only two other periods in the post-war era: 1985 and 2002. On both occasions, the dollar eventually weakened materially. In his view, the current level of the dollar reflects not only economic strength, but the lack of sufficiently developed alternatives.
 
Perhaps the most striking point was that the greatest threat to the dollar may not come from abroad but from within.
 
The US fiscal position is a central concern. Rising debt, higher interest costs and a growing dependence on short-term borrowing leave the US more vulnerable to future shocks. Rogoff warned that interest payments are on track to become the single largest item in the US budget. That does not mean crisis is inevitable, but it does mean the margin for error is shrinking.
 
At the same time, technology may reshape the debate. Stablecoins could reinforce the dollar’s role in the digital economy, while cryptocurrencies and alternative payment systems offer countries and individuals new ways to move outside the traditional dollar-based framework.
 
The conclusion was clear: the dollar is not disappearing, but the era of unquestioned dominance may be ending. The future is likely to be more fragmented, more competitive and more multipolar. For investors, that means thinking less in terms of a single global anchor and more about a world where selectivity, diversification and resilience matter more than ever.

Reports of the death of public markets are exaggerated.

​At this year’s HSBC Global Investment Summit in Hong Kong, one of the most compelling discussions brought together the leaders of three of the world’s major exchanges: Hong Kong Exchanges and Clearing, the London Stock Exchange (LSE) and Nasdaq. Despite differing regional perspectives, there was striking agreement on one point: reports on the death of public markets have been greatly exaggerated.
 
For years, investors have been fed the idea that in the modern financial era, companies can stay private indefinitely and no longer need to list. The evidence suggests otherwise. Hong Kong’s market led the world for IPOs in 2025, with 120 companies raising over US$37 billion, while the LSE and Nasdaq both pointed to a stream of companies that had listed with them, and robust pipeline ahead.
 
The real debate is no longer public versus private. Instead, the discussion has shifted towards how companies move more seamlessly between the two. Exchanges increasingly see their role not simply as venues for IPOs, but as partners throughout a company’s entire funding journey.
 
The London Stock Exchange described this as a “funding continuum”: helping companies access capital from early-stage private funding through to a public listing and beyond. New products, such as regulated private market platforms, are being developed to give companies greater flexibility, provide liquidity to early investors and employees, and allow firms to remain private for longer without losing access to capital.
 
At the same time, public markets still offer something unique and important: democratisation. Public listings allow far more investors to participate in the growth of successful companies, rather than leaving the fruits of that value creation solely in the hands of a small group of private investors.
 
Another major theme was the increasing globalisation of capital markets. While most companies still tend to list in their home market, exchange leaders agreed that many businesses eventually outgrow their domestic base. In particular, fast-growing companies in Asia often reach a point where they require access to deeper pools of international capital. Rather than competing directly, exchanges increasingly see opportunities to collaborate, whether through secondary listings, cross-border partnerships or complementary products.
 
The discussion also highlighted how quickly market structure is changing. Nasdaq’s plans to move towards 23-hour trading reflect growing demand from global retail investors, particularly in Asia. However, there was caution that longer trading hours could not entail a drop in standards. Liquidity, investor protection and market integrity remain critical. Exchange leaders repeatedly stressed that technology should not come at the expense of fairness or transparency.
 
Tokenisation and digital assets were another focus. Rather than replacing traditional markets, tokenisation is increasingly being viewed as a tool to reduce friction, improve settlement and make markets more efficient. The consensus was clear: innovation will only succeed if it sits within a robust regulatory framework.
 
Finally, artificial intelligence is rapidly becoming embedded across exchanges. AI is already being used to review company filings, monitor markets for misconduct, improve investor relations and make vast amounts of market data easier to analyse. Yet with AI also increasing the risks of misinformation and market manipulation, exchanges see their role as ensuring that technology is used responsibly.
 
The conclusion from Hong Kong was clear: capital markets are not standing still. Public and private markets are converging, technology is reshaping the way investors access opportunities, and exchanges are evolving from trading venues into broader capital market ecosystems. 

Join us for our upcoming webinar sharing our latest investment outlook.

Elston Consulting's Henry Cobbe spoke to Citywire Wealth Manager, discussing Elston's early move into commodities and how it has helped clients navigate the Iran energy crisis. The article explores how Elston has challenged the traditional 60:40 portfolio model, the results that have followed, and what the company's strategy means for wealth managers operating in an increasingly unpredictable macro environment.

Read the full Citywire feature here

​Higher inflation means lower real returns on bonds. UK gilt yields look attractive on paper, but once you strip out inflation expectations, investors are getting less than 1% in real terms. For some, that's reason enough to look beyond the traditional 60/40 portfolio.

When the oil price rises, BEIRs typically increase, reflecting rising inflationary pressures.  For the same given nominal yield, after deducting a higher BEIR, real yields (the total return on bonds after inflation) decline.
When the oil price falls, BEIRs typically decrease, reflecting falling inflationary pressures.  For the same given nominal yield, after deducting a lower BEIR, real yields (the total return on bonds after inflation) increase.

​The chart below shows the breakdown of Total Return for a Gilts Index fund and for the VT Munro UK Equity Income fund (which is benchmarked to our Elston UK Equity Income index) for the last 5 years.
The UK Equity Income strategy delivered an income return of 5.5%pa (from the UK’s largest dividend payers), and a capital return of +8.5%pa for a total return of +14.0% pa.
The UK Gilts index strategy delivered an income return of 2.5%pa (reflecting the average yield over that period), and capital return of negative -7.8%pa for a total return of -5.3%pa.

The crisis in the Gulf means another inflation shock is potentially on the way.  As in 2022, this means that nominal assets, such as Gilts and Corporate Bonds are once again at risk.
For advisers seeking to build portfolio resilience, accepting some volatility risk with UK Equity Income is a proven way to mitigate inflation risk.
Advisers should discuss with their client which risk they are concerned about – the level of fluctuation of an asset class, or the preservation of capital in real terms.

We are reaching once again for our radical and contrarian 2022 inflation adaptive playbook that helped protect our IFA and DFM clients back then who were overseeing multi-asset portfolios.  To recap, it involves three steps.
Equities: tactically reduce and tilt toward Value/Yield
Reducing equities within budgeted risk mandates to mitigate downside risk.  And tilt equity position to value and yield factor.  Dividend‑oriented equities (such as UK Equity Income) have historically offered better resilience in inflationary, rate‑sensitive environments. They often represent businesses with persistent pricing power or stable cash flows – characteristics the market rewards during periods of uncertainty.
Bonds: tactically reduce and shorten duration
Nominal Bonds such as Gilts and Corporate Bonds are poor stores of value when inflation rises.  Their fixed stream of cashflows is worth less and less in real terms as inflation rise.  And the longer their term, the less valuable that future value is in today’s terms.  With risk of static or rising interest rates, it makes sense to shorten duration.
Alternatives: tactically increase using an all-weather fund approach
With equities and bonds at risk, it makes sense to reach for Alternatives.  But what kind of Alternatives?  
​​

The fund bought an Oil ETC in late January as a protection against a potential conflagration, and also bought a Natural Gas ETC as the extent of reciprocal strikes expanded. The fund sold property and infrastructure securities (which are equity like in nature), to move to a more defensive risk-off posture in the first week of the war.  Ultrashort duration bonds have been split across both GBP and USD.
Given the pace of information and change coming out of the conflict, for DFMs and IFAs it can sometimes be too long to wait until the next monthly or quarterly investment committee meeting.  This fund therefore provides UK financial advisers with a more agile way of adapting to rapidly changing markets.
As in 2022, the “buy and hold” approach can be damaging when there is a structural inflation regime change – particularly for bonds and therefore more “cautious” portfolios.  Having an all-in-one diversifier therefore represents a useful addition to portfolios.
​
More information is available from the fund’s website www.avastrafunds.co.uk. The fund is available to UK financial advisers and investment managers via most platforms. 

Iran’s preparedness for this conflict means it is lasting longer and costing more than the US is likely to have expected.  This means it is also having a far bigger impact on the stock market.

The duration that the Strait of Hormuz remains closed to international shipping determines the height of the oil price spike and the length of time it lasts.  Even after any cease fire, Iran’s major card is keeping the Strait closed (whilst allowing shipping of Iran’s allies - Russia and China and non-aligned India - to sail through).  The longer the Strait stays closed, the greater the risk to inflation and economic growth.  The chart below shows an estimate of oil price paths depending on the duration of the closure of the Strait of Hormuz.  In 1973, the oil embargo ended after 6 months.

The International Energy Association (IEA) and member countries all have strategic reserves to insulate economies from a shock of this nature.  The IEA announcement of a record 400m barrels of oil to be released from strategic reserves (led by the US) covers just 20 days of lost volume through the Strait and will take weeks or months to come to market.  Production increases could deliver a further 2mbpd (million barrels per day) - not enough to offset lost volume.  Easing sanctions on Russia, makes it easier for India to buy oil (and Russia receives a better price), but does not create more volumes.  If the Strait remains closed for longer than 20 days, then the reserves don’t make a difference.  Rebuilding those reserves will also provide support to the oil price once the Strait reopens.​

 Oil, petrol, diesel and gas prices are all interlinked, so an oil price spike has a direct impact on inflation and the cost of living.  Higher oil prices mean it’s more expensive to fill a car with petrol or to heat a home with gas.  Direct and indirect energy makes up 14.5% of the UK inflation basket.  With these costs moving sharply upwards, the longer they remain elevated, the greater the risk that UK (and US) inflation re-accelerates.  Having declined close to the 2% target, it could now increase to +5% over the coming 12 months, depending on how long the Strait remains closed.
 
The chart below shows the relationship between UK inflation, wage growth and interest rates.  The difference between 2022 and now is that unemployment is higher: this may deter the Bank of England from raising rates - so a holding decision seems more likely.

In our Investment Committee discussions, we continue to focus on how to ensure portfolio resilience in face of these changing risks.

Similar to the 2022 Russia/Ukraine invasion, energy crisis and inflation scenario:

1. Equities look vulnerable to recession risk, so merit a review on overall allocation.  Within equities, a preference to Value and Yield factors is more inflation resilient.
2. Bonds which looked attractive at the start of the year (increasing real (inflation-adjusted) yields, falling interest rates), look unattractive (decreasing real yields), steady or higher interest rates).
3. Alternatives look attractive as a way of selectively gaining access to asset classes positively correlated with inflation such as Copper, Oil and Gold - (the “COGs”) - as well as broader Commodities and other inflation-resilient asset classes.
4. Money Markets and Floating Rate Notes: in an environment where interest rates remain higher for longer, money market instruments and Floating Rate Notes aligned to Central Bank policy rates become more attractive as well as acting as a volatility dampener.
5. Currency: despite the structural long-term challenges for the US Dollar, in “risk-off” moments, it is still a relative safe-haven asset, so a tilt to Dollars in Bond and Money Markets provides diversification alongside Sterling.

 
When the facts change dramatically, as they have done with the 2026 oil price shock, it is prudent to adapt asset allocations accordingly to mitigate the revised risk outlook.  

​We see concentration risk as a choice, not an obligation.  If investors are concerned about the concentration of US Technology companies in the S&P 500, then consider the S&P 500 Equal Weight Index (which allocates 1/500th or 0.2% to each company in the index).

Similarly, (as we outlined in our 2024 research insight) if investors are concerned about sector concentration risk in a traditional world equity index, then consider the Elston World Equity Sector Equal Weight Index (which allocates 1/11th or 9.09% to each sector (via a representative ETF).  This approach “levels the playing field,” so that the each sector has the same weight, in this alternatively constructed index.

An essential part of portfolio risk analytics for financial advisers is understanding the inherent biases within a multi-asset portfolio including the sector positioning of an equity allocation.  This enables advisers’ investment committees to then consider whether they wish to include certain sector-specific allocations.

For UK advisers, please contact us if you would like to find out more about how we can help

Dispersion within equity markets – whether within regions, within regional equity market segments, within sectors or within factors – creates potential for alpha for those fund managers that are willing to exploit it.  Dispersion is in fact, the active manager’s best friend.  In this respect, rotation creates an opportunity: to capture it requires both discipline and agility.