Bear Market in Diversification Eases as Investors Seek Alternative Assets

In the face of ongoing market disruption in 2025, Wall Street’s diversification-focused professionals are witnessing a change in investment trends.

What Happened: With the tariff war in full swing, investors are shifting their focus from American equities to alternative assets such as gold, corporate debt, and a Treasury index that has seen a nearly 3% rise this year.

As reported by Bloomberg, the trading landscape is undergoing a transformation, marking a much-anticipated return to normalcy for proponents of diversification strategies.

Despite the promotion of cross-asset products by some of the industry’s leading minds, the steady rise in US shares since the financial crisis has largely overshadowed these strategies.

Currently, the S&P 500 is mired in a correction, ending another week of uncertainty with a 0.5% increase. However, previously dormant investment vehicles, ranging from leveraged quant portfolios to options-hedged products, are gaining momentum. An exchange-traded fund (ETF) that diversifies bets across asset classes, including commodities and bonds, has surged over 5% since the start of the year, outperforming the S&P 500 by approximately 9 percentage points.

Also Read: Stock Market Predictions for 2025: A Mixed Bag Of Expectations

Meb Faber, founder of Cambria Funds, commented, "It feels a long time coming." His global asset-allocation ETF (GAA) has risen 3% this year, potentially marking its best performance relative to the S&P 500 since its inception.

However, the continuation of this trend remains uncertain. US stocks have lagged behind the global portfolio in Cambria's model twice since the global financial crisis, only to bounce back amidst improving economic sentiment, reports the outlet.

Given the stretched valuations of US equities and an uncertain growth outlook, investors are being encouraged to explore a broad range of strategies, including both bullish and bearish equity wagers. Pete Hecht, head of the North America portfolio solutions group at AQR Capital Management, advised, "I would say investors need to lean on diversification even more than normal."

Why It Matters: The shift towards diversification strategies and alternative assets reflects an evolving investment landscape. As traditional equities continue to face uncertainty, investors are seeking more balanced portfolios to mitigate risk.

This trend could potentially reshape Wall Street’s approach to investment, emphasizing the importance of diversification in an increasingly volatile market.

Read Next

$21 Trillion Wealth-Creating Stocks Are Still Undervalued — Three Big Bargains To Buy Now