Key insights
- UBS suggests increasing exposure to alternative assets like hedge funds, private equity, and infrastructure to hedge against volatility and geopolitical risks. They favor global macro hedge funds, value-oriented private equity, and infrastructure for stable, inflation-linked cash flows. While noting risks like illiquidity and higher fees, UBS believes alternatives can provide diversification and new return sources in uncertain markets. This may lead to a slight reallocation of capital away from traditional US equities.
Investing.com -- UBS said investors should increase exposure to alternative assets to help manage rising volatility and geopolitical risks, pointing to hedge funds, private markets and infrastructure as key diversifiers.
The bank said the end of the rate-cut cycle and rising global debt levels strengthen the case for alternatives, which can provide new sources of return and reduce portfolio risk.
Hedge funds are among the most attractive options, UBS said, noting that global macro strategies have historically performed well during geopolitical crises, delivering equity-like returns with significantly lower volatility and smaller drawdowns. It also highlighted equity market neutral and multi-strategy funds as flexible approaches that can generate returns in both rising and falling markets.
"In our view, hedge fund strategies like discretionary macro, equity market neutral, and multi-strategy platforms are well placed to earn returns amid volatility," analysts at UBS said.
In private markets, UBS said it remains constructive on private equity, supported by improving deal activity, stronger exit trends and a more favorable macro backdrop. It favors value-oriented buyouts and secondaries, which may be less exposed to sector-specific volatility.
The bank advised caution in direct lending, urging investors to focus on higher-quality borrowers as default risks rise in lower-tier segments.
UBS also pointed to infrastructure and real estate as long-term diversifiers, particularly in an environment of potentially higher energy prices. It said infrastructure assets can offer stable, inflation-linked cash flows, while real estate returns are likely to be driven more by income than capital appreciation.
UBS said alternatives can help portfolios navigate uncertain markets, though it cautioned that such investments come with risks including illiquidity, higher fees and lower transparency.