- UBS Bank stated that 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 tools for diversification.
The bank noted that the end of the interest rate cut cycle and rising levels of global debt strengthen the case for alternative investments, which can provide new sources of returns and reduce portfolio risks.
Hedge funds are among the most attractive options, according to UBS, noting that global macroeconomic strategies have historically performed well during geopolitical crises, achieving returns similar to equities with much lower volatility and smaller declines. It also highlighted market-neutral equity funds and multi-strategy funds as flexible approaches that can achieve returns in both rising and falling markets.
"In our view, hedge fund strategies such as discretionary macro, market-neutral equities, and multi-strategy platforms are well positioned to generate returns amid volatility," said analysts at UBS.
In private markets, UBS said it remains optimistic about private equity, supported by improved deal activity, stronger exit trends, and a more favorable macroeconomic environment. It favors value-oriented acquisitions and secondary investments, which may be less exposed to the volatility of specific sectors.
The bank advised caution in direct lending, urging investors to focus on higher-quality borrowers with increased default risks in lower tiers.
UBS also pointed to infrastructure and real estate as long-term diversification tools, especially in an environment that might see rising energy prices. It stated that infrastructure assets can offer stable cash flows linked to inflation, while real estate returns are likely to be driven more by income than by capital appreciation.
UBS stated that alternative investments can help portfolios navigate uncertain markets, although it warned that such investments come with risks including illiquidity, higher fees, and reduced transparency.
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