How to ensure portfolio resilience
We explored this topic in our recent CPD webinar - within and across each asset class. But given recent geopolitical events, it makes sense to look under the bonnet of the VT Avastra Global Diversified Assets fund (which we consult to), to consider what alternative asset class exposures can act as the best shock-absorbers to 1) structural change from AI, 2) rising geopolitical tensions in the Gulf and 3) the debasement trade. For these, we turn to what we have named the "COGs" for a portfolio - Copper, Oil and Gold. 
Ensuring portfolio resilience begins with recognising the shifting macroeconomic backdrop and understanding how different asset classes respond under stress. Dispersion has become a defining feature—across regions, sectors, and asset types—so a one‑size‑fits‑all approach no longer suffices. Instead, resilience requires a dynamic assessment of risk, correlation, and forward‑looking inflation and productivity expectations. The core idea is to construct portfolios that are not only diversified in name but diversified in behaviour, particularly in periods of market strain when correlations can spike unexpectedly. This means focusing on selective equity exposure, balancing duration and real yields in fixed income, and embedding genuinely diversifying assets and strategies that behave differently in different market regimes.
A bloody start to the year
The beginning of the year saw pro-regime change protestors being brutally and lethally crushed. Trump threatened Iran with intervention if the crackdown didn’t stop leading to an uneasy truce. 
Are equity markets in an AI bubble? Is AI a bubble? These questions crop up everywhere – from client meetings to magazine covers – and reflect a broad sense of unease. When people ask about “bubble trouble,” what they really want to know is whether markets have become dangerously detached from reality. Here’s how we at Elston think about it: what the data shows, what history suggests, and – crucially – what we’re actually doing in portfolios.
The Debasement Trade: A Narrative
One of the big themes that has quietly but steadily emerged over the last twelve months is what market watchers have come to call the debasement trade. It didn’t begin with any single dramatic event; rather, it built slowly from ideas that long pre‑dated today’s political headlines. Even before Trump returned to power, one of his advisers had laid out the blueprint in a paper dubbed the “Mar-a-Largo Accord” - a proposal centred around a coordinated dollar devaluation aimed at making the American rust belt competitive again. 
by Hoshang Daroga CFA, Investment Director, Elston Consulting
Is the AI boom starting to look like a bubble? 
The US equity market has pushed on higher this year fuelled by the AI boom, and investors are beginning to question whether the environment resembles the latter half of the 1990s with its dotcom boom (and subsequent April 2000 bust). While valuations in certain areas look stretched, the broader market picture is more mixed.
Long-term UK gilt yields are rising despite falling inflation expectations and BoE rate cuts. Explore how debt sustainability concerns and reduced demand for bonds are driving this unusual market shift.
With the dollar down 20% since 2022, hedging looks tempting. But UK debt, housing risks, and BOE policy suggest sterling could be even more vulnerable.
Parallels are drawn between the mid-1990s tech revolution and today's AI-driven surge in the US equity market. While valuations appear stretched, the underlying conditions are more measured than the dot com era. The US economy continues to show resilience with AI-led productivity gains and potential rate cuts shaping the outlook.
Gold has defied rising real yields since 2022. Central bank buying, debt sustainability fears, and currency debasement risks continue to drive demand.
Although the Bank of England cut rates, long-dated Gilts yields are rising (so their values are falling).
Whilst there have been structural and trading shifts driving Dollar weakness, there is downside risk to Sterling too.
Under pressure
In recent months, the U.S. dollar has come under pressure, with many observers attributing its weakness to the perceived end of American exceptionalism and a supposed rotation of capital flows out of the U.S. This narrative has gained traction alongside the belief that the eurozone may be on more solid footing than previously thought. However, in truth, there have been no significant flows out of the U.S. Figures published by the US department of Treasury debunks the claim for rotation out of the US. The primary driver of the dollar’s decline has been hedging activity, not structural reallocations or changes in economic fundamentals. We believe that, over time, fundamentals will reassert themselves—and when they do, the dollar is likely to recover further. |
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