Portfolio Resilience

5 key strategies to fortify portfolios

Learn how to boost portfolio resilience with five strategies that offer diversification, inflation protection and risk management.

Caroline Lewis, Head of Alternatives for OCIO

Anjanie Sriram, Executive Director, Investment Product Specialist, Derivatives

Published April 4, 2025

When it comes to investing, many factors lie beyond investors’ control. Economic growth, inflation, interest rates, trade policy, geopolitics—all may influence markets in ways no one can predict with perfect confidence.

But here’s what’s squarely in investors’ control: making sure investment portfolios are resilient, positioned to meet wealth goals under a range of economic and market outcomes. And there’s a welcome bonus: Taking this approach can help investors stay calm during periods of market turbulence.

Portfolio resilience is a simple concept, but delivering on its promise requires a thoughtful approach.

Here, we discuss five strategies we believe can strengthen portfolio resilience. Many of them offer return streams uncorrelated to stocks and bonds, an especially attractive quality when public markets experience bouts of volatility.

1

Downside buffers, upside potential

Structured notes

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As equity markets have moved lower in recent weeks, largely on investor concerns about tariffs, many of our clients are increasingly looking for downside risk mitigation, optimized income and help staying invested in uncertain times. All three approaches can strengthen portfolio resilience.

Structured notes offer the potential to deliver on all three fronts. Importantly, in a time of uncertainty, they can offer some clarity about portfolio return streams.

Structured notes come in many forms. These are tailored investments that can offer asymmetric returns, providing a blend of downside risk mitigation, income optimization and market participation. This unique risk-reward profile helps enhance portfolio resilience by allowing for potential upside gains while mitigating downside risks. That’s why we think structured notes may have a role to play in portfolio construction.

To help strengthen portfolio resilience, structured notes may offer:

Downside risk mitigation

For example, a structured note with a “static buffer” (at a predefined level) might provide a hedge against, say, a 15% drop in the S&P 500 at expiry of the note, along with a coupon. Other structured notes offer some potential for upside gains along with downside risk mitigation if markets move higher before the note’s expiry.

Optimized income potential

Along with a downside buffer, structured notes may enhance a portfolio’s overall yield potential and thus strengthen portfolio resilience. Some qualified clients may consider shifting portions of their allocations from cash or traditional fixed income into structured products.

Help staying invested

Even stalwart market veterans can find it difficult to stay calm as markets lurch. Structured notes appeal to many clients who want to reduce, but not eliminate, their market exposures. A structured note with downside buffer and coupon can help make that happen while also—and this is important—keeping clients invested amid market volatility.

Of course, structured notes are not a one-size-fits-all strategy. Sizing a structured note allocation will depend on risk tolerance, investment objectives and time horizon, among other factors.

Structured notes can be used to get invested and stay invested

SPX index rolling return

Source: Derivative Solutions, Blomberg Finance L.P. Historical performance measures for the index represent hypothetical back tested performance from January 2, 2002 to December 31, 2024. Past performance is no guarantee of future results. It is not possible to invest directly in an index.

Putting the projection into context

If one invested in a 54 week note every day over the past 20 years,

the investment in SPX notes would have returned initial principal

93.49% of the time with 15% protection (85% static or contingent)
90.97% of the time with 10% protection (90% static or contingent)

If one invested in a 2 year SPX note every day over the past 20 years,

the investment in SPX notes would have returned initial principal

91.90% of the time with 15% protection (85% static or contingent)
90.62% of the time with 10% protection (90% static or contingent)

Since 2011, a 2 year SPX note

would have returned the initial principal

99.94% of the time with 15% protection (85% static or contingent)
99.74% of the time with 10% protection (90% static or contingent)

2

Optimizing income with alternative investments

Private credit, infrastructure, real estate

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At a very high level, investing strategies target capital appreciation, income or some combination of the two. When capital appreciation is harder to come by, income strategies may be especially attractive. In providing consistent cash flows through bouts of volatility, these strategies can deliver the income targeted for lifestyle needs. They can also serve as portfolio diversifiers, helping strengthen portfolio resilience.

Alternative asset classes (including private credit, infrastructure and real estate) can potentially offer yields that are higher than many of their public market equivalents (including investment grade corporate bonds).

Alternative investments yielded more than many public market equivalents

Asset class yields, percent (%)

Source: BAML, Bloomberg Finance LP., Clarkson, Cliffwater, Drewry Maritime Consultants, Federal Reserve, FTSE, MSCI, NCREIF, FactSet, Wells Fargo J.P. Morgan Asset Management. *CML is commercial mortgage loans. **CRE - Mezz is mezzanine commercial real estate debt. Equities and fixed income yields are as of 2/28/2025. Alternative yields are as of 9/30/2024, except Timber, which is as of 12/31/2024; CRE - Mezz, which is as of 2/28/2025; and CML - Senior, which is as of 12/31/2024. CML - Senior: Market-capitalization weighted average for all mortgages in the Giliberto-Levy Commercial Mortgage Index. Mezzanine commercial mortgage loans yield is derived from a J.P. Morgan Survey and U.S. Treasuries of a similar duration. Global Transport: Levered yields for transport assets calculated as the difference between charter rates (rental income), operating expenses, debt amortization and interest expenses, as a percentage of equity value, and are based on a historical 15-year average. Yields for each of the sub-vessel types are calculated and respective weightings are applied to arrive at the current levered yields for Global Transportation; Preferreds: BAML Hybrid Preferred Securities; Direct Lending: Cliffwater Direct Lending Index; U.S. High Yield: Bloomberg U.S. Aggregate Corporate High Yield; Global Infrastructure: MSCI Global Private Infrastructure Asset Index; Global REITs: FTSE NAREIT Global REITs; International Equity: MSCI AC World ex-U.S.; U.S. 10-year: 10-year U.S. Treasury yield; U.S. Equity: MSCI USA, Europe Real Estate: Market weighted-Avg. of MSCI Global Property Fund Indices - U.K. & Cont. Europe; U.S. and Asia Pacific (APAC) core real estate: MSCI Global Property Fund Index. Euro Govt. (7-10 yr.): Bloomberg Euro Aggregate Government - Treasury (7-10); Timber: NCREIF Timberland Index (U.S.) - EBITDA Return. Past performance is not a reliable indicator of current and future results. Data are based on availability as of February 28, 2025.

Private credit

These are loans extended by an asset manager (rather than a bank) to corporate borrowers. Most of the loan return comes in the form of income from the coupon payments. These loans also carry floating rate yields, which offer a potential hedge against rising rates and increasing inflation.

Infrastructure

Presents another source of steady income. Here, we refer to traditional infrastructure (toll roads, electricity grids, airports, power and transportation networks—many of them essential services) as well as new kinds of digital infrastructure (data centers needed for artificial intelligence [AI] and assets linked to the energy transition). While the United States is the largest market for data centers, accounting for roughly 40% of the global market, the data center market is growing around the world.

Real estate

Similar to private credit loans, most of the return from core real estate comes in the form of rental payments. We think the asset class can serve as a robust source of income.

How might investors choose one source of additional income over another? Both infrastructure and core real estate have a low or negative correlation to broader asset classes, and thus can act as useful diversifiers in a multi-asset portfolio. This may be helpful if a portfolio has concentrated positions in other asset classes. On the other hand, if a significant share of an investors’ wealth is invested in real estate, say, investors may want to find additional income in strategies other than real estate.

Infrastructure and core real estate are diversifiers, tending to move differently from broader asset classes

Public and private market corerlations, quarterly returns

Source: Bloomberg Finance LP., Burgiss, Cliffwater, FTSE, HFRI, MSCI, NCREIF, J.P. Morgan Asset Management. *Europe Core RE includes continental Europe. Private Equity and Venture Capital are time weighted returns from Burgiss. RE – real estate. Global equities: MSCI AC World Index. Global Bonds: Bloomberg Global Aggregate Index. Global REITs: FTSE EPRA NAREIT Global REITs Index. U.S. Core Real Estate: NCREIF Property Index – Open End Diversified Core Equity component. Europe Core Real Estate: MSCI Global Property Fund Index – Continental Europe. Asia Pacific (APAC) Core Real Estate: MSCI Global Property Fund Index – Asia-Pacific. Global infrastructure (Infra.): MSCI Global Private Infrastructure Asset Index. U.S. Direct Lending: Cliffwater Direct Lending Index. Timber: NCREIF Timberland Property Index (U.S.). Hedge fund indices are from HFRI. Transport: returns are derived from a J.P. Morgan Asset Management index. All correlation coefficients are calculated based on quarterly total return data for the period 6/30/2008 to 9/30/2024. Returns are denominated in USD. Past performance is not a reliable indicator of current and future results.Data are based on availability as of February 28, 2025

3

Defending against inflation

Real estate and infrastructure

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Core real estate and infrastructure are negatively correlated with public markets, yet they have a strong positive correlation to inflation. In other words, their returns rise when inflation does, so they can potentially act as an inflation hedge. That’s a critical element of portfolio resilience.

Inflation hedges look increasingly timely, as newly implemented tariffs threaten to push prices higher. Although we do not anticipate a drastic spike in inflation, we acknowledge slower progress in bringing down inflation (and a quicker pace of tariff implementation) than we had expected.

How do real estate and infrastructure strategies manage to escape the fallout from inflation and thus act as inflation hedges for investors? Essentially, they pass higher costs on to their customers.

In real estate, if inflation creates higher operating costs, they would typically be passed through to renters via rent increases. Infrastructure deals often feature long-term (up to 20 years) contractual provisions that provide some insulation from political changes and effectively pass on cost increases to customers (through, for example, higher monthly utility charges or bridge and tunnel tolls).

In sum: Should a trade war and tariffs drive prices higher, inflation protection will be increasingly attractive.

4

Diversifying versus equities and the 60/40 portfolio

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Hedge funds can also act as portfolio diversifiers, and they often do well when market volatility increases. Both attributes can serve to strengthen portfolio resilience.

Even after the recent market sell-offs, many of our clients find themselves with concentrated positions—more concentrated than they may realize—in the tech stars (the so-called Magnificent 7) that are still up roughly three fold since the start of 2023. These clients may need to further diversify their equity holdings—and hedge funds may be one of the most effective ways to do it.

In the current environment, one statistic highlights hedge funds’ diversification potential: their negative correlation to a 60/40 portfolio (60% equities, 40% fixed income). In other words, as the chart below illustrates, when the 60/40 zigs, hedge funds often zag.

Hedge funds often offer a low or negative correlation to the 60/40

Hedge fund correlation with a 60/40 stock-bond portfolio, monthly (rolling 12 months)

Sources: HFRI, Standard & Poor’s, Bloomberg Finance LP, FactSet, J.P. Morgan Asset Management. * 60/40 portfolio is 60% S&P 500 and 40% Bloomberg U.S. Aggregate. Hedge funds are represented by HFRI Macro. Data are based on availability as of December 31, 2024.

While markets remained relatively calm through much of 2023 and 2024, recent market declines remind us that volatility is normal. And hedge funds tend to do well in times of market volatility.

5

Protecting against geopolitical risk

Gold

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Gold: Geopolitical risk presents a particular challenge to resilient portfolios, since it is one of the most difficult risks to quantify. In our view, gold may offer some protection against this hard-to-measure risk.

Gold has had an average positive return of 1.8%, with a median return of 3% in the four weeks leading up to and including the major geopolitical shocks of the last 20 years.¹

Although the price of gold has rallied strongly in the past few years (it’s up 65% since the end of 2021 and up 13.5% year-to-date), we see two reasons why gold’s rally could continue in the year ahead. (More specifically, we target a year-end price for gold between $3,100 and $3,200, up about 14% from current levels.)

First, we expect growing demand from central banks, which currently hold about 20% of their FX reserves in gold. Second, we note that limited supply will likely support prices going forward. Current estimates suggest that gold deposits, including gold reserves still underground, total 244,040 tonnes of the precious metal. That would fill just a little over three Olympic-sized swimming pools.

Conclusion

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Whether markets move up, down or sideways, a resilient portfolio can help investors achieve long-term financial goals. Remember, resilience is not just about weathering the market storm, but also about positioning portfolios to potentially thrive in any investing environment.

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¹Dario Caldara and Matteo Iacoviello, J.P. Morgan Private Bank, Bloomberg Finance L.P., Haver Analytics. Data as of April 16, 2024. Note: The timeframe of the analysis goes from January 1985 to April 2024. We used the Geopolitical Risk (GPR) Index to isolate geopolitical shocks where its standard deviation is greater than 2. For consecutive series of data points exceeding 2 standard deviations, we only take into account the first data point. This analysis is based on average weekly data.

Indices

S&P 500: Standard & Poor’s 500 Index is an unmanaged broad-based index that is used as representation of the U.S. stock market. It includes 500 widely held common stocks. Total return figures reflect the reinvestment of dividends. “S&P500” is a trademark of Standard and Poor’s Corporation.

Bloomberg U.S. Aggregate: Bloomberg U.S. Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS and CMBS (agency and nonagency).

HFRI Macro: Hedge Fund Research, Inc. Macro Index is a financial index that tracks the performance of hedge funds using macroeconomic strategies, such as interest rate changes and currency fluctuations. Compiled by Hedge Fund Research, Inc., it serves as a benchmark for evaluating macro-focused hedge funds.

Important Information

Key Risks

This material is for informational purposes only, and may inform you of certain products and services offered by private banking businesses, part of JPMorgan Chase & Co. (“JPM”). Products and services described, as well as associated fees, charges and interest rates, are subject to change in accordance with the applicable account agreements and may differ among geographic locations. Not all products and services are offered at all locations. If you are a person with a disability and need additional support accessing this material, please contact your J.P. Morgan team or email us at accessibility.support@jpmorgan.com for assistance. Please read all Important Information.

Investing in alternative assets involves higher risks than traditional investments and is suitable only for sophisticated investors. Alternative investments involve greater risks than traditional investments and should not be deemed a complete investment program. They are not tax-efficient and an investor should consult with his/her tax advisor prior to investing. Alternative investments have higher fees than traditional investments and they may also be highly leveraged and engage in speculative investment techniques, which can magnify the potential for investment loss or gain. The value of the investment may fall as well as rise and investors may get back less than they invested.

Derivatives may be riskier than other types of investments because they may be more sensitive to changes in economic or market conditions than other types of investments and could result in losses that significantly exceed the original investment. The use of derivatives may not be successful, resulting in investment losses, and the cost of such strategies may reduce investment returns.

GENERAL RISKS & CONSIDERATIONS

Investing in Structured Notes involves a number of significant risks. We have set forth certain risk factors and other investment considerations relating to the investment below. Not all investments are suitable (or in the best interest) for all investors. You should analyze the Structured Notes based on your individual circumstances, taking into account such factors as investment objectives, tolerance for risk, and liquidity needs.

• Fixed income: Bonds are subject to interest rate risk, credit and default risk of the issuer. Bond prices generally fall when interest rates rise.

• Equities: The price of equity securities may rise or fall due to the changes in the broad market or changes in a company’s financial condition, sometimes rapidly or unpredictably. Equity securities are subject to “stock market risk,” meaning that stock prices in general may decline over short or extended periods of time.

• No direct claim and no investment in the underlying: Investors have no claim to the underlying index or basket of securities

• Use of derivatives: The purchasing of Structured Investments involve derivatives and risk factors that may not be suitable (or in the best interest) for all investors. Before investing in a Structured Investment, investors should review the accompanying prospectus and prospectus supplement to understand the actual terms and risks associated with specific structured products. In certain transactions, investors may lose their entire investment.

• Principal at risk: Structured Products do not guarantee any return of your investment. Holders may lose 100% of their initial investment. A Structured Product may specify a level of protection at maturity, subject to the issuer’s credit risk. Notes that offer principal protection are only protected up to the specified protected amount

• Buy and hold to maturity instruments: Structured Notes are not designed to be short-term trading instruments but rather investments that should be held until maturity.

• Costs and fees: There are certain costs and fees associated with investing in Structured Notes, and you should consider these prior to investing. Details are contained in the offering material for a particular investment.

• Risk of loss: Structured Notes do not guarantee any particular return of your investment, unless the note has principal protection, subject to the issuer’s credit risk. Structured Notes may decline in value in connection with a decline in the underlying asset value.

• Liquidity risk: As Structured Notes are intended to be held to maturity, there may be no or only a very limited secondary market, which means you may be unable to sell before the product reaches maturity. Even if a secondary market can be found, the limited secondary market, a lack of liquidity and/or low trading volume in the market for the Structured Notes would decrease the market value of the Structured Notes. Thus, even if a secondary market exists, you may lose significant value if sold prior to maturity.

• Issuer credit and default risk: Structured Notes are unsecured debt obligations of the issuing company, and thus subject to credit risk and default by the issuer. A decline in the creditworthiness of the issuer may affect its ability to meet its obligations, including the issuer’s ability to pay interest and repay principal. A default by an issuer could result in the loss of some or all of the amount you invest, even for Structured Notes denoted as “principal protected.” Therefore, the financial condition and creditworthiness of the issuer are important considerations.

• ETF tracking and correlation risk: The performance and market value of an exchange traded fund ("ETF") may not correlate with the performance of the ETF’s underlying index due to factors such as, but not limited to, holding different instruments than the index, corporate actions, and transaction costs and fees. In addition, factors such as, but not limited to, market volatility and supply/demand may cause an ETF share’s market value to differ from its net asset value. These factors may materially and adversely affect the value of an ETF-linked product Volatility risk: The performance of the Structured Notes may change unpredictably. This volatility may be influenced by the market and/or external factors, including financial, political, regulatory, economic events and other conditions.

• Derivatives/hedging risk: The issuer may at any time establish, maintain, adjust or unwind hedge positions in respect of its obligations under the product, but it is not obligated to do so. Hedging activity may adversely affect the value of assets underlying the product and the performance of the product.

• No dividend or interest payments or voting rights, and tax consequences of investing in Structured Notes: Holders of a Structured Note do not have voting rights. There are no dividends or interest payments paid during the term of a Structured Note. You may, however, have to pay income taxes on any imputed annual income even though no payment is received until maturity. J.P. Morgan does not provide tax advice. You should review the issuer’s offering material and consult with your own tax advisor.

• No government or other insurance protection: The Structured Notes are not bank deposits insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC), or any other governmental agency or deposit protection fund.

• Early redemption: The Structured Notes may be redeemed before the scheduled maturity date other than as a result of being called by the issuer. Certain events that may result in an early redemption of the Structured Notes: If the Structured Notes are redeemed early following such an event, you may receive back less than your original investment. The amount payable to you on an early redemption may also factor in the issuer’s costs of terminating hedging and funding arrangements associated with the Structured Notes.

• Currency/exchange risk: Where the Structured Notes are benchmarked to a foreign currency, changes in various factors, including rates of exchange, may have an adverse effect on the value of the investment.

• Market disruption and economic factors: The trading market for the Structured Notes might be volatile and might be disrupted or adversely affected by many events. There can be no assurance that events in the United States or elsewhere will not cause market volatility or that such volatility will not adversely affect the price of the Structured Notes, or that economic and market conditions will not adversely affect the price of the Structured Notes, or that economic and market conditions will not have any other adverse effect. Market disruption can adversely affect the performance of the Structured Notes.

• In addition to the level of the underlying on any day, the value of the Structured Investment will be affected by a number of economic and market factors, including the implied volatility of the underlier, the time to maturity, dividend rates, interest rates, issuer creditworthiness and macroeconomic factors, such as financial, political, regulatory or judicial events.

• Capped returns: The return on Structured Notes may be limited by a specific maximum return, coupon or upside participation level, as defined at offering.

• Potential conflicts: When performing duties, our and JPMorgan Chase & Co.’s economic interests and your economic interests in the Structured Notes potentially could be adverse when our family of companies plays multiple roles. It is also possible that hedging or trading activities of ours or our affiliates in connection with the Structured Notes could result in substantial returns for us or our affiliates while the value of the Structured Notes decline.

• The above is not an exhaustive list of all the risks or other investment considerations relating to the product. For a complete assessment of the risks associated with this investment, you should review, with your own professional advisors where necessary, the offering circular, term sheet and other related documentation for a particular trade, which fully describe all terms, conditions and risks. Not all investments are suitable (or in the best interest) for all investors. Investors should analyse products based on their individual circumstances and taking into account such factors as their investment objectives, tolerance for risk and liquidity needs.

Private credit securities may be illiquid, present significant risks, and may be sold or redeemed at more or less than the original amount invested. There may be a heightened risk that private credit issuers and counterparties will not make payments on securities, repurchase agreements or other investments. Such defaults could result in losses to the strategy. In addition, the credit quality of securities held by the strategy may be lowered if an issuer’s financial condition changes. Lower credit quality may lead to greater volatility in the price of a security and in shares of the strategy. Lower credit quality also may affect liquidity and make it difficult for the strategy to sell the security. Private credit securities may be rated in the lowest investment grade category or not rated. Such securities are considered to have speculative characteristics similar to high yield securities, and issuers of such securities are more vulnerable to changes in economic conditions than issuers of higher-grade securities.

Private investments are subject to special risks. Individuals must meet specific suitability standards before investing. This information does not constitute an offer to sell or a solicitation of an offer to buy . As a reminder, hedge funds (or funds of hedge funds), private equity funds, real estate funds often engage in leveraging and other speculative investment practices that may increase the risk of investment loss. These investments can be highly illiquid, and are not required to provide periodic pricing or valuation information to investors, and may involve complex tax structures and delays in distributing important tax information. These investments are not subject to the same regulatory requirements as mutual funds; and often charge high fees. Further, any number of conflicts of interest may exist in the context of the management and/or operation of any such fund. For complete information, please refer to the applicable offering memorandum. Securities are made available through J.P. Morgan Securities LLC, Member FINRA, and SIPC, and its broker-dealer affiliates.

As a reminder, hedge funds (or funds of hedge funds) often engage in leveraging and other speculative investment practices that may increase the risk of investment loss. These investments can be highly illiquid, and are not required to provide periodic pricing or valuation information to investors, and may involve complex tax structures and delays in distributing important tax information. These investments are not subject to the same regulatory requirements as mutual funds; and often charge high fees. Further, any number of conflicts of interest may exist in the context of the management and/or operation of any such fund. For complete information, please refer to the applicable offering memorandum.

Investments in commodities may have greater volatility than investments in traditional securities, particularly if the instruments involve leverage. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. Use of leveraged commodity-linked derivatives creates an opportunity for increased return but, at the same time, creates the possibility for greater loss.

Diversification and asset allocation does not ensure a profit or protect against loss

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Morgan SE Brussels Branch is also supervised by the National Bank of Belgium (NBB) and the Financial Services and Markets Authority (FSMA) in Belgium; registered with the NBB under registration number 0715.622.844. In Greece, this material is distributed by J.P. Morgan SE—Athens Branch, with its registered office at 3 Haritos Street, Athens, 10675, Greece, authorized by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) and jointly supervised by the BaFin, the German Central Bank (Deutsche Bundesbank) and the European Central Bank (ECB); J.P. Morgan SE—Athens Branch is also supervised by Bank of Greece; registered with Bank of Greece as a branch of J.P. Morgan SE under code 124; Athens Chamber of Commerce Registered Number 158683760001; VAT Number 99676577. In France, this material is distributed by J.P. 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