Navigating Tariff Turbulence:
1. Market Overview: Tariff-Induced Volatility
Financial markets are experiencing heightened volatility due to recently announced tariffs. These policies may act as negotiation levers, but they also risk slowing growth and increasing inflation—fueling volatility across risk assets.
Both equities and Treasuries have declined since March 1, reinforcing the perspective that the traditional 60/40 portfolio may no longer suffice. Investors are increasingly favoring value stocks, real assets, and credit over duration.
2. Outlook for Risk Assets
Indicators are split: soft data (surveys, sentiment) has weakened sharply, while hard data (employment, industrial activity) remains firm. BofA analysts believe a policy pivot could emerge later this year, offering upside for assets tied to U.S. growth and infrastructure, high-quality credit, and gold.
3. The Case for Alternatives: Rethinking Traditional Portfolios
As the correlation between stocks and bonds rises, institutional and individual investors are turning to alternatives. BlackRock and other analysts recommend expanding beyond the 60/40 model—with proposals for a 60/20/20 model (equities/bonds/alternatives) to better weather market shocks. BlackRock emphasizes that incorporating alternative strategies, like long/short equity and private credit, offers uncorrelated returns that enhance portfolio resilience.
4. Private Credit’s Growing Appeal
Private credit continues to gain traction as investors seek income-generating assets beyond traditional fixed income. The asset class offers attractive spreads and provides diversification benefits due to its low correlation with public markets. BlackRock underscores the importance of private markets in allocating capital toward transformational trends like infrastructure, AI, and decarbonization. Loans backed by real assets—such as real estate—are particularly attractive in this environment. With senior secured positions, these instruments offer protection against both interest rate risk and credit risk.
California real estate continues to be a cornerstone of collateral quality, supported by high property values, strong demand fundamentals, and supply constraints in key metro areas. Amid market uncertainty, investors value tangible collateral and downside protection—making private credit funds secured by California real estate especially compelling.