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 your 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 your control: making sure your investment portfolio is resilient, positioned to meet your wealth goals under a range of economic and market outcomes. And there’s a welcome bonus: Taking this approach can help you 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.
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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 your portfolio’s return streams.
Structured notes come in many forms. These are tailored investment solutions that offer asymmetric returns, providing a blend of downside risk mitigation, income optimization and market participation. This unique risk-reward profile enhances 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 your portfolio construction.
To help strengthen portfolio resilience, structured notes offer:
Downside risk mitigation
For example, a bread-and-butter 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
Along with a downside buffer, structured notes may enhance a portfolio’s overall yield and thus strengthen portfolio resilience. Some clients may choose to shift 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. You may share that feeling. Structured notes appeal to many clients who want to reduce, but not eliminate, their market exposures. A structured note’s downside buffer and coupon can help make that happen while also—and this is key—keeping you invested amid market volatility.
Of course, structured notes are not a one-size-fits-all solution. 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.
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, strengthening portfolio resilience.
Alternative asset classes (including private credit, infrastructure and real estate) offer yields that are higher than many of their public market equivalents (including investment grade corporate bonds).
Alternative investments yield more than many public market equivalents
Asset class yields, percent (%)
Source: BAML, Bloomberg, 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 you 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 your portfolio has concentrated positions in other asset classes. On the other hand, if a significant share of your wealth is invested in real estate, say, you 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 correlations, quarterly returns
Source: Bloomberg, 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, 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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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.
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Conclusion
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Whether markets move up, down or sideways, a resilient portfolio can help you achieve your long-term financial goals. Remember, resilience is not just about weathering the market storm, but also about positioning your portfolio 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.
