Diversified real assets can help correct market imbalance

This article from Rob Gleeson, Chief Investment Officer at FE Investments, was originally published in FT Adviser in April 2026.

Since the start of 2025, markets have been navigating geopolitical tension, uneven growth and lingering inflation pressures. Rapid changes in the energy market and subsequent inflation outlook introduce additional variables that are difficult to forecast and even harder to hedge with traditional equity-bond allocations alone.

Many portfolios are built to participate in growth. Far fewer are structured to absorb sudden policy shifts or supply shocks. Disruption to global oil supply has implications for supply chains, corporate margins, currency stability and global capital flows. It also increases political instability, prolonging uncertainty and reinforcing geopolitical fragmentation.

For many, diversified real assets are now emerging as a structural hedge to protect portfolios while achieving significant growth during this period of volatility.

Tariff volatility and multi-asset construction

A supply shock can play out in many different ways, but higher costs for producers and rising prices as a consequence are common features regardless of the cause. An energy shock is especially damaging, impacting many parts of the supply chain at once. While in the medium term markets can reconfigure themselves to minimise the impact, shipping terminals and oil pipelines are not easy things to relocate. Neither are oil fields, for that matter. 

This creates a challenging backdrop for traditional 60/40 equity and bond portfolios. Equities face earnings risk, while bonds may struggle if inflation expectations drift higher. Correlations, which investors rely on for diversification, can become unstable. Multi-asset portfolios, therefore, need a third pillar: assets that behave differently when policy risk rises.

Real assets, including gold, infrastructure, commodities and certain segments of real estate, tend to respond to different drivers than financial assets. They are often supported by inflation pass-through, tangible value, and, in some cases, regulated or contracted cash flows. In periods of policy uncertainty, that differentiation becomes critical. While energy prices have already swung violently, a broader commodities basket can help offset some of this volatility.

Managing dollar exposure in a more fragmented world

Tariffs and policy uncertainty more generally have added an additional component: currency volatility. A traditional safe haven from market chaos, the dollar loses its lustre if the US is the source of that chaos. 

Newly interventionist foreign policy, ever-changing tariff regimes and fiscal sustainability all add to causes for concern. Possibly increasing demand for the dollar in the short term and diminishing it in the long term.

Global portfolios with unhedged dollar exposure need to reassess concentration risk. The dollar remains the world’s reserve currency, but its dominance is gradually being tested at the margins. Central bank gold purchases, bilateral trade agreements outside the dollar system and reserve diversification all point to a more multipolar currency landscape.

Active currency management, selective hedging and exposure to real assets priced in multiple currencies can help reduce reliance on a single macro outcome.

Real assets as a diversifier 

Gold’s recent strength is not occurring in isolation. It reflects a combination of geopolitical stress, central bank buying and investor demand for assets outside the traditional financial system.

However, gold should not be viewed as a core growth engine. It does not produce cash flows and can be volatile over shorter horizons. Its role is more precise: it is a diversifier that historically performs well during currency stress, policy uncertainty and negative real-rate environments.

In portfolio construction terms, gold works best as a stabiliser rather than a driver. A measured allocation can improve downside resilience without materially diluting long-term growth potential.

Investors who are structurally underweight protection often add it to their portfolio after volatility has already risen. A strategic allocation avoids that reactive behaviour.

Focusing solely on bullion risks misses the wider opportunity.

Listed infrastructure offers long-duration, inflation-linked cash flows that can help offset equity volatility. Certain segments of real estate are repricing to levels that compensate for higher rates. Industrial commodities remain central to structural themes such as electrification and supply chain localisation — trends that may accelerate if tariff barriers persist.

These exposures introduce resilience without requiring investors to abandon growth assets entirely.

Maintaining growth while building resilience

The objective is not to retreat from equities. Global growth remains uneven but positive, and innovation continues to create opportunity across sectors and regions.

The challenge is concentration. Over the past decade, strong US equity performance has encouraged portfolios to become increasingly reliant on a narrow set of growth drivers. Tariff volatility is a reminder that policy can disrupt those assumptions quickly.

This approach means maintaining core equity exposure to ensure participation in long-term growth, while diversifying more deliberately across geographies and sectors to reduce concentration risk. It involves introducing selective real-asset allocations as structural diversifiers, rather than tactical add-ons, to provide resilience when traditional assets move in tandem. 

It also requires actively managing currency exposure, particularly to the US dollar, recognising that exchange rate volatility can materially influence returns in a more fragmented global system. Finally, portfolios should be regularly stress-tested against inflation shocks and supply chain disruption scenarios to ensure they are positioned not only for expansion but also for periods of sudden policy driven turbulence.

What to watch next

In assessing where markets may head next, investors will need to look beyond the headlines and focus on the signals embedded within the data.

Inflation expectations, particularly breakeven rates, remain a critical barometer, revealing how markets are pricing future cost pressures and the credibility of central banks’ policy paths. At the same time, shifts in the dollar index and movements in cross-currency basis swaps can provide early clues about funding stress or changing global capital flows, often before these tensions surface more visibly. 

Meanwhile, central bank gold purchases and broader reserve data offer insight into deeper, structural adjustments in sovereign asset allocation.

Equity bond correlation dynamics also need to be understood to assess whether traditional diversification is holding, as well as volatility indices and credit spreads, which tend to be early warning signals of rising market stress and deteriorating risk appetite.

A sustained widening in credit spreads or a disorderly move in the dollar would signal deeper stress. Conversely, if tariff rhetoric softens or implementation proves gradual, markets may absorb the shock more calmly.

For now, the message is straightforward. Growth exposure remains essential, but so does protection. The latest conflict in the Middle East reinforces an imbalance that has been building for years: investors are comfortable staying exposed to growth markets, yet often hold less insurance when currency and geopolitical risks increase.

Diversified real assets, deployed thoughtfully rather than reactively, can help correct that imbalance.