This article looks at the dynamic nature of bond market volatility. What it means for portfolio construction. And how short-run measures help spot the canary in the coalmine.
The traditional 60/40 balanced portfolio is facing a structural breakdown as resurgent inflation and soaring government debt turn nominal bonds into an unsafe asset class. When asset correlations rise and real returns turn negative, traditional diversification methods fail to protect client outcomes. Discover the three strategic levers asset allocators must pull to reinvent their bond allocations and build true all-weather portfolio resilience.
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. 
By Henry Cobbe CFA, Head of Research at Elston Consulting.
Elston Consulting provides asset allocation insights and fund research to UK-based investment managers and financial advisers as support to their investment committees. For UK investment managers and financial advisers only In this article we explore the Iran conflict’s impact on the economy and the stock market. In a related article we explore why Trump started the war with Iran.
In this video, we explore how the recent Iran conflict is creating a new oil and energy shock — and what that means for the global economy and investment markets
In this video, we break down the rapidly evolving Iran–US conflict and explore how a major geopolitical shock has unfolded with far‑reaching consequences for global stability and financial markets.
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. 
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.
Equities have recovered strongly from the tariff shock earlier in the year. Dollar weakness vs Sterling has weighed on the relative performance of US equities; however, this was a step-change and there are concerns for Sterling too. Gold has continued to perform very strongly on the “debasement trade” and Central Bank buying. Within Bonds, Emerging Markets are in better shape than Developed Markets, in our view.
Gold has defied rising real yields since 2022. Central bank buying, debt sustainability fears, and currency debasement risks continue to drive demand.
Is bitcoin a reliable hedge against currency debasement, or does gold still lead? We explore risks, volatility, and why central banks continue to back gold.
While the theoretical case for private markets can look compelling, the practical realities are more complex and not without pitfalls.
There are some key issues investors need to consider, in our view, are: 1) illiquidity, 2) opacity and 3) fees and misaligned incentives. We explore each of these in turn. 
Join us for our webinar on 20 May 2025 at 10:30am BST as Henry Cobbe, CFA interviews John Reade (World Gold Council) on the role of gold in modern portfolios.
 How hard is it to beat the world equity indexA world equity index is hard to beat. And, according to the SPIVA studies, very few active global equity managers do so persistently. Listed Private Market Managers have persistently outperformed world equitiesAnd yet, an index-tracking fund that tracks an index of the largest listed private market managers (firms such as Apollo Global Management, Blackstone, Brookfield, KKR and 3i) has persistently outperformed a broader world equity index since 2008. This persistent long-term outperformance is one of the reasons we like including Listed Private Market Managers as an exposure within portfolios we consult on. What is the return premium for Private Market Managers?We refresh our regular study and find that the long-term (since 2008) premium of Listed Private Market Managers performance over Public Equities increased from +3.2% at end 2023 to +3.4% at end 2024. For investment committess targeting a net return of say World Equities +2%, net of fees, exposure to a simple Private Market Managers ETF has consistently delivered persistent alpha. How did Private Market Managers perform in 2024?In 2024, Private Market Managers was one of the best performing asset classes, returning +31.7%, compared to +17.3% for World Equities, both in GBP terms. What is the right "PME" benchmark for a private equity fund?This raises the question should private equity funds aim to deliver returns above public equities (represented by a world equity index), or should they aim to deliver returns above the returns of a listed private market managers index (on a public market equivalent ("PME") calculation basis)? We think the latter: but we don't expect many to accept the challenge. What are the risks?Unsurprisingly, Listed Private Market Managers is a higher beta index, relative to a world equity index. This means when markets are up, they go up more. When markets are down, they go down more. The performance of Listed Private Market Managers experienced a major dip in 2022 as interest rates rose rapidly. This was because of the exposure of private market funds to rising borrowing costs. This made the sector even more sensitive to rising interest rates than the Property or Infrastructure sector, within the Alternative Assets basket. What about the "illiquidity premium"?We prefer not to have exposure to illiquid funds in any portfolio we consult on for our UK financial adviser community. Why? Because we think the "illiquidity premium" is elusive: hard to harvest if things go well, and evaporating quickly if things do not. What does this mean for investment committees?
How can UK advisers get exposure?This exposure is readily available via a London-listed ETF launched back in 2007. There is nothing new about this exposure, but it is certainly worth taking a fresh look. For platforms that cannot trade ETFs, advisers can consider a Alternatives fund that includes an allocation to a Listed Private Markets Manager ETF. Find out more  What is driving gold prices?There are three key drivers of the gold price in 2024-25. Some of these trends are structural, some are more short-term. 1. Geopolitical Risk and "Risk-Off" DemandFirstly, gold is an uncorrelated asset class meaning that it is an accessible and liquid diversifier. It can act as a shock absorber during period of elevated geopolitical risk. So the recent uncertainty around Trump's tariff policies and what that could do to equity markets (earnings risk) and bond markets (inflation risk), makes Gold an "risk-off" Alternative. 2. Central Bank Buying: Structural Demand from Emerging MarketsSecondly, Central Bank buying: although the Western world has reduced the amount of gold it holds in Central Banks reserves, Developing Markets - such as China, India and Russia - have been buying physical gold, such that overall, Central Bank gold reserves are on the increase. This is has been a medium-term trend for BRICs countries to reduce their dependency on the Dollar. This is a medium-term structural trend. 3. Gold as a Store of Value and Inflation Hedge: Debt ConcernsFinally, a store of value and inflation hedge: as markets worry about debt indigestion - the oversupply of US Government Bonds and the long-term sustainability of Western e.g. US/UK debt levels, Gold is a "real asset" that preserves value should there be any risk of devaluation of debt securities. Gold is a "real" store of value because it also acts as an inflation hedge: whereas nominal Bonds cannot hold their real value when inflation rises, Gold tends to hold its value in real terms and has withstood inflation shocks through revolutions, wars and even back in Biblical times! This is a long-term structural trend. Find out more
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