Diversify with alternatives

21 August 2026, 09:35 UTC Chief Investment Office GWM Investment Research

Strategic: Diversify with alternatives Diversify with alternatives Author: Sagar Khandelwal, Strategist, UBS Switzerland AG

• Why? 1) Global macro hedge funds can be a resilient portfolio building block as growth, inflation, and interest rate trends diverge into the end of 2026. 2) Private infrastructure can diversify long-term income sources, with inflation-linked cash flows potentially appealing if oil supply disruptions persist. 3) Private equity offers the potential to capture long term growth and direct exposure to key themes such as tech, health care or energy. Investors must be prepared to tolerate unique risks when investing in alternatives such as Source: Sinitta Leunen_Unsplash illiquidity, high fees, and limited transparency.

Hedge funds We remain positive on select event-driven strategies. Hedge fund strategies like discretionary macro, equity Overall, the improving deal pipeline and broader number market neutral, and multi-strategy platforms are well placed of sectors in which corporate activity takes place remain to earn returns in the second half of 2026, in our view. We supportive. We continue to favor merger arbitrage and think they can build on their 7.5% return in the first half special situations, while maintaining a more selective stance (initial HFRI data as of mid-July), which was the strongest toward credit arbitrage. first six months in five years. Private infrastructure From 1997 to June 2026, discretionary macro traders We believe infrastructure assets are well positioned to posted an average annualized return of 7.2% (BarclayHedge deliver resilient, inflation-linked returns through market Global Macro Index) with volatility of 5.6%—comparable cycles. Many infrastructure assets face limited competition to equities but with less than half the volatility. Meanwhile, and high barriers to entry, so owners can pass through the maximum drawdown for macro strategies over the past cost increases to users. Infrastructure investments can help two decades was 8.1% versus 54.0% for developed market hedge against inflation because revenue streams are often equities (MSCI World). tied to CPI, particularly for core strategies operating in regulated or contracted assets. Their income streams may We also see ongoing opportunities for equity market neutral therefore be more robust than other yielding assets to and multi-strategy funds, which can generate returns in both economic volatility and inflation. Such qualities appear both rising and falling markets as they flexibly position increasingly valuable in the current environment. around economic developments. Equity hedge was the top strategy first-half strategy returning +9.6% based on HFRI Infrastructure’s returns have looked appealing relative data, and has benefited from elevated stock dispersion and to other parts of a well-diversified portfolio. Private greater opportunities for security selection. Managers have infrastructure has delivered annualized returns of around shown early signs of positioning for a broadening of market 11% over the past decade, according to data from leadership, though the rotation is still at an early stage. We Cambridge Associates. But infrastructure also behaves continue to favor disciplined, lower net, and market-neutral differently to other assets, potentially helping steady managers who can monetize stock dispersion while actively portfolios. Recent years have seen the asset class’s already managing concentration and factor rotation risks. low correlations with traditional stocks and bonds fall further. Infrastructure returns display only a 30% correlation

This report has been prepared by UBS Switzerland AG. Please see important disclaimers and disclosures at the end of the document.

with a standard 60/40 portfolio, and even less so with other AI-driven disruption, we recommend diversifying beyond diversifying assets like gold. technology and software to capture opportunities across the broader AI value chain. In the current climate, we believe investors who focus on diversified, core/core-plus assets in non-cyclical sectors Regionally, the US remains a…