As volatility continues to define markets in 2025, multi-asset strategies are proving their worth through flexibility, diversification and risk-aware positioning. In this analysis, Aberdeen’s Katie Trowsdale, Head of Client Investment Solutions – Multi Asset Investment Solutions, explores how a dynamic blend of strategic and tactical allocation—alongside an expanded use of alternatives—can help investors navigate today’s complex environment and build resilient portfolios beyond the traditional 60:40 model.
This article was featured in our Multi-asset Fund Insights 2025, looking at the latest thinking and analysis into what’s going on within this key market segment. Readers can check out the full publication here.
In the ever-changing landscape of financial markets, multi-asset investing has proven to be a valuable strategy. Its strength lies in its adaptability, offering a range of tools to navigate volatile market conditions, which has been particularly crucial this year. Let’s delve into the key components of multi-asset investing and how they can be leveraged to manage market turbulence effectively.
Strategic Allocation: The Long-Term Perspective
Strategic allocation involves positioning investments based on long-term expectations. Sharp rotations in equity and fixed income markets can present attractive opportunities across a wide universe of asset classes. However, it’s essential to maintain a long-term view. Making significant shifts in portfolio positioning during volatile periods such as the one that was witnessed in April, can be risky, as it may lead to being whipsawed by market fluctuations. Instead, it’s often better to wait until the market stabilises and expected returns have a higher level of certainty.
Tactical Allocation: Seizing Short-Term Opportunities
Increased market volatility can create excellent opportunities for tactical moves. However, it’s essential to ensure that these decisions are backed by strong conviction and sound fundamentals. This can be challenging, especially in uncertain policy environments. For instance, during periods of unpredictable changes in policy witnessed under Trump’s tariffs, the risk of being whipsawed remains high.
Alternatives: Diversifying Beyond Traditional Assets
Multi-asset investors have a plethora of tools at their disposal, including alternatives. When equity markets appear stretched or uncertain and fixed income spreads are narrow, alternatives can offer diversification and stability. Options such as infrastructure, Real Estate Investment Trusts (REITs), and absolute return funds can perform well, especially when interest rates are declining. In the current environment, where central banks are balancing rising inflation and falling growth, alternatives provide additional tools to navigate a more uncertain, stagflationary backdrop.
We invest about 10% of the growth part of our portfolios in alternatives, including REITs and infrastructure. These asset classes are beneficial to include against a typical 60:40 portfolio for several reasons:
- Diversification: Infrastructure and REITs often have lower correlations with traditional equity and fixed income markets. This means they can provide a buffer during market downturns, reducing overall portfolio volatility.
- Stable Cash Flows: Infrastructure investments, such as those in transportation, utilities, and energy, tend to have stable, long-term cash flows. These assets are often essential services with regulated returns, adding a layer of predictability and security to the portfolio.
- Inflation Hedge: Both infrastructure and REITs can act as a hedge against inflation. Infrastructure assets often have revenue streams linked to inflation, while REITs can pass on rising costs to tenants through higher rents.
- Government Support: Infrastructure projects frequently benefit from government support and favourable regulatory frameworks, which can enhance their stability and attractiveness as investments.
- Growth Potential: REITs provide exposure to the real estate market, which can offer significant growth potential, especially in sectors like commercial real estate, where demand can be driven by economic expansion and urbanisation.
The 60:40 Portfolio: A Historical Cornerstone
The 60:40 portfolio, which allocates 60% to equities and 40% to fixed income, has historically been a cornerstone for investors due to its diversification benefits and the typical inverse correlation between bonds and equities. However, managing this approach is not straightforward, particularly in today’s environment where fixed income volatility has increased. Fixed income is a complex asset class, and simply allocating 40% of your portfolio to it is not sufficient. Investors need to consider factors such as duration, debt quality and inflation-linked options, which highlights the benefits of multi-asset investing.
When it comes to equities, a market cap approach is also not advisable. Concentration risks can be significant, as demonstrated by the heavy weighting of the US in the MSCI World Index. This lack of diversification can lead to sharp declines, as seen during this recent period of volatility. This underscores the importance of careful SAA positioning of a portfolio on a forward-looking basis and the diversification benefits of multi-asset investing.
Conclusion
Multi-asset investing offers a robust framework for navigating volatile markets. By combining strategic and tactical allocations with alternative investments, investors can better manage risk and seize opportunities. The 60:40 portfolio remains a valuable tool, but it requires careful management and an actively managed approach to both fixed income and equity allocations. As we continue to face uncertain market conditions, the flexibility and breadth of multi-asset investing will remain a key advantage for investors.
In summary, the strength of multi-asset investing lies in its ability to adapt to volatile market conditions. By maintaining a long-term perspective, seizing short-term opportunities where you have conviction, and diversifying through alternatives, investors can effectively manage risk and capitalise on market opportunities.
About Katie Trowsdale
Katie Trowsdale is Head of Public Market Solutions in the Multi-Asset Investment Solutions team at Aberdeen, having previously been the Head of the Multi-Manager Strategies team. She is also co-manager of the flagship MyFolio fund range. Based in London, Katie joined Aberdeen in 2011 and has over 24 years of investment experience. Katie joined Aberdeen from Gartmore, where she had worked since 2007 as a portfolio manager in the fund of funds team. Previously, Katie was a private client portfolio manager and fund of funds manager at Kleinwort Benson Private bank and Heartwood Wealth.
