Alts for the Second Half — Building Resilience in Times of Uncertainty
In the first half of 2025, several key market forces we identified at the start of the year — rising uncertainties tied to the new U.S. administration’s policy shifts, increased market volatility, and the testing of elevated U.S. equity valuations — began to take shape. As such, broadening portfolio diversification beyond the traditional 60/40 framework was crucial for effectively navigating the shifting market environment. Looking ahead, we anticipate continued bouts of broad market volatility and varied performance within and across asset classes. While the current administration appears willing to work with international partners, uncertainty surrounding tariff policy is likely to persist. Prospects for deregulation and lower taxes remain, but quantifying their ability to offset tariff-related impacts will be challenging, given the true economic effects are not yet clear. Meanwhile, escalating geopolitical tensions and mixed economic data are expected to complicate the Federal Reserve’s (Fed) decision-making process, limiting the likelihood of a clear path forward. Considering these factors, we encourage investors to diversify their portfolios with alternative strategies that could help enhance portfolio stability in periods of uncertainty.
Policy Uncertainty to Remain High
Source: LPL Research, Bloomberg 07/13/25
Disclosure: Past performance is no guarantee of future results. All indexes are unmanaged and cannot be invested in directly.
he first half of the year was quite conducive for equity market-neutral strategies, and we expect this environment to continue. Although tariff concerns briefly pushed the U.S. equity market near bear territory, it quickly rebounded to record highs following a temporary pause in tariff enforcement. However, tariff negotiations remain unresolved, with potential legal challenges adding further uncertainty. While deregulation and favorable tax policies could offer some support, elevated U.S. equity valuations — requiring higher earnings multiples amid slowing growth and shifting policies — reinforce our view that market-neutral strategies can continue to perform well and add value to portfolios.
For diversifying strategies such as global macro and managed futures, we came into the year holding a constructive view on subsets of each strategy, namely nimble discretionary macro with broad geographic coverage within global macro and diversification away from core sector-concentrated trend followers within managed futures. Looking ahead for the remainder of the year, as we expect the macro and market conditions to be an extension of what we’ve experienced during the first half of the year, we hold the same view for discretionary macro managers. For managed futures, trend followers spent the first five months shifting their positions and now carry lighter and more balanced exposure. That said, with the expectation of whipsawing markets, we encourage investors to continue to hold a diversified book of sub-strategies.
Discretionary Macro Reacts Better in Whipsawing Market
Source: LPL Research, Bloomberg, HFR, Societe Generale 06/30/25
Disclosure: Past performances no guarantee of future results. All indexes are unmanaged and cannot be invested in directly.
Sharp Market Reversals Challenged Trend Followers
Source: LPL Research, Bloomberg, HFR 05/31/25
Disclosure: Past performance is no guarantee of future results. All indexes are unmanaged and cannot be invested in directly.
LPL View
The LPL Research Strategic and Tactical Asset Allocation Committee (STAAC) remains constructive on alpha-generating, diversifying liquid alternative / hedge fund strategies, especially equity market-neutral, nimble discretionary global macro, diversified managed futures, and multi-strategy.
Important Disclosures
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors. To determine which investment(s) may be appropriate for you, please consult your financial professional prior to investing.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. Asset allocation does not ensure a profit or protect against a loss.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk.
Indexes are unmanaged and cannot be invested into directly. Index performance is not indicative of the performance of any investment and does not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
This material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
Unless otherwise stated LPL Financial and the third-party persons and firms mentioned are not affiliates of each other and make no representation with respect to each other. Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services.
Asset Class Disclosures –
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
Bonds are subject to market and interest rate risk if sold prior to maturity.
Municipal bonds are subject and market and interest rate risk and potentially capital gains tax if sold prior to maturity. Interest income may be subject to the alternative minimum tax. Municipal bonds are federally tax-free but other state and local taxes may apply.
Preferred stock dividends are paid at the discretion of the issuing company. Preferred stocks are subject to interest rate and credit risk. They may be subject to a call features.
Alternative investments may not be suitable for all investors and involve special risks such as leveraging the investment, potential adverse market forces, regulatory changes and potentially illiquidity. The strategies employed in the management of alternative investments may accelerate the velocity of potential losses.
Mortgage-backed securities are subject to credit, default, prepayment, extension, market and interest rate risk.
Global infrastructure refers to the systems and networks that connect communities, economies, and nations across the world. This includes transportation, energy, water, and communications systems.
Managed futures are speculative, use significant leverage, may carry substantial charges, and should only be considered suitable for the risk capital portion of an investor's portfolio.
Treasury Inflation-Protected Securities (TIPS) help eliminate inflation risk to your portfolio as the principal is adjusted semiannually for inflation based on the Consumer Price Index — while providing a real rate of return guaranteed by the U.S. Government.
High yield/junk bonds (grade BB or below) are below investment grade securities, and are subject to higher interest rate, credit, and liquidity risks than those graded BBB and above. They generally should be part of a diversified portfolio for sophisticated investors.
Precious metal investing involves greater fluctuation and potential for losses.
The fast price swings of commodities will result in significant volatility in an investor's holdings.
This research material has been prepared by LPL Financial LLC.
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