ensuring portfolio resilience - a multiasset approach

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.

EQUITIES

Equity markets today present a split personality. While the US technology sector dominates market‑cap‑weighted indices and lifts overall valuations, this frothiness is not universal. Many regions—notably the UK—trade at far more modest valuation multiples, making selective allocation a powerful tool. The choice to be concentrated in US mega‑cap tech is exactly that: a choice rather than an inevitability.
Within this mix, UK equity income stands out as a resilient component. Its high dividend yield provides a consistent underpin to total returns, particularly when reinvested over long periods. Dividends have historically delivered a substantial share of the FTSE All‑Share’s total return, offering both income stability and a means to outpace inflation. Crucially, UK equities also behave differently from US markets, often zigging when US tech zags. Their lower correlation with world equities—especially since Brexit—creates genuine diversification, making them an effective counterbalance within a multi‑asset portfolio.

BONDS

Fixed income markets face a different set of pressures, particularly around the long‑term affordability of government borrowing. For UK investors, the debate revolves around the trajectory of debt‑to‑GDP ratios. With productivity growth remaining subdued, projections show debt levels potentially rising sharply over coming decades unless productivity meaningfully improves. This structural concern has placed longer‑dated gilts under scrutiny and raised questions about whether the UK should shift issuance toward shorter maturities.
At the same time, moderating inflation expectations have allowed real yields to turn positive again—a constructive development for bonds. This means investors must think carefully about duration positioning and the trade‑off between nominal yields and inflation‑adjusted returns. While long‑dated bonds may carry affordability risks, medium‑term maturities with newly positive real yields regain relevance as part of a balanced portfolio.

ALTERNATIVES

The non‑equity part of a portfolio increasingly relies on diversified assets to provide resilience when equities and bonds face simultaneous pressure. Alternatives fall into two broad categories: different things (alternative assets) and doing things differently (alternative strategies).
Alternative assets include listed infrastructure, property securities, commodities, clean energy, industrial metals, and precious metals such as gold. These assets offer diversification because their economic drivers differ from traditional markets. Gold, in particular, played a standout role in 2025 as investors sought protection against inflation, debt concerns, and currency debasement.
Alternative strategies, such as absolute return funds, equal‑risk approaches, or risk‑parity allocations, use traditional building blocks in unconventional ways to target more stable risk outcomes. The real test for any alternative, though, is correlation. Low‑correlation, low‑beta exposures provide genuine diversification—bending the efficient frontier leftward and reducing overall portfolio risk—while highly correlated options amount to “diversification in name only.”