From the studio

Podcast: Jump Start | 2Q earnings, CPI data, US-Iran update (7 mins)
Video: Investors Club | Is the AI memory supercycle intact? (6 mins)
Video: Equity strategy amid strong earnings and record highs (5 mins)

Thought of the day

Tensions between the US and Iran escalated further over the weekend, with the US military launching more strikes on Iran after the latter’s drone and missile attacks against US allies, including Kuwait, Jordan, and Qatar. Iran’s Islamic Revolutionary Guard Corps said it would not allow any vessels to pass through the Strait of Hormuz, although a maritime advisory group said that a southern route through the waterway remains open to shipping.

Brent crude oil was trading 3.6% higher at USD 78.8/bbl at the time of writing, the 10-year Treasury yield was moving higher toward 4.6%, and gold was down 1.2% to around USD 4,070/oz. S&P 500 futures were pointing 0.4% lower ahead of the US market open.

The continued hostilities over the past week underscore the challenge of finding a lasting agreement between Washington and Tehran, casting doubt on the future of the interim peace deal signed last month, which aimed to reopen the Strait and end the war within 60 days. Still, we believe both sides remain incentivized to avoid a return to all-out war, and we expect robust earnings growth and a resilient economic backdrop to provide further support for markets.

Our view remains that global equities have room to move higher, and we expect bond yields to fall when markets scale back expectations for central bank tightening. For investors, maintaining a diversified portfolio remains key, and we see additional ways to bolster portfolio resilience.

Consider gaining exposure to broad commodities. Commodities have historically exhibited low correlations with equities and bonds, while offering effective long-term inflation protection. In the current environment, we believe energy exposure can help buffer against renewed supply disruptions, El Niño-related risks should support agricultural commodities, and the AI boom and electrification trend remain positives for industrial metals. Gold, meanwhile, should stay supported by central bank demand, continued diversification away from the US dollar, and global debt concerns over the long term.

Use capital preservation strategies for more defensive positioning. Investors do not have to choose between pursuing upside and protecting against downside risk, as capital preservation strategies can help investors remain invested while reducing the impact of drawdowns. Currently, we see value in locking in gains where appropriate, de-risking select exposures, and using structured investments to help manage downside risk. Additionally, capital preservation strategies can be customized for tenor, loss avoidance, and participation, allowing investors to tailor the degree of protection and upside participation.

Include an allocation to alternatives such as hedge funds. Based on initial HFRI data as of the end of June, hedge funds’ solid 7.6% overall return during the first six months of this year marked the best first-half performance since 2021. Given their broader and more flexible mandates, hedge funds can dynamically adjust positions, deploy leverage, and hedge key risks. We like global macro and relative value strategies, and think a modest allocation to select hedge funds can enhance portfolio resilience and smooth overall return outcomes. Investors, however, should stay selective and align allocations with their liquidity needs and risk objectives.

So, while geopolitical risks may continue to weigh on market sentiment, we think broad commodities, capital preservation strategies, and select hedge funds can help diversified portfolios better withstand near-term volatility.