By Navin Lala

2024 was the biggest election year in human history where over 70 countries representing more than half of the global population held elections. It is estimated that over 80% of incumbent parties lost voter support in 2024 compared to the previous election, making it a significant year for global democracy.

Economic challenges, especially inflation, and overall dissatisfaction with incumbent governments were key drivers behind voters' decisions to oust incumbents leading to key electoral outcomes such as the return of Donald Trump to the White House and here at home the ANC losing its majority for the first time since 1994.

One of the consequences of the elections anti-incumbent theme is that the world is now scattered with a host of newly installed governments seeking to change the status quo, with President Donald Trump being at the forefront of this sea of change.

Trump’s America First policy together with his drive towards greater deregulation was well received by corporate America at the start of the year boosting optimism around US growth and future corporate profits. After months of the talk or threat of tariffs, the Trump administration announced a 25% tariff on imports from Mexico and Canada, and the doubling of duties on Chinese goods to 20%, all effective as of 4 March. Launching new trade conflicts with the US’s top three trading partners, and freezing aid to Ukraine are significant events signalling a major shift in the global landscape.

Markets by nature are never certain, however the impulsivity of Trump where he is known to say one thing in the morning and say or tweet something completely different in the evening, makes it virtually impossible for investors to decipher between what is posturing and noise, and what will actually be implemented.

What is clear, is that the next four years are likely to be marked by a complex interplay of geopolitical tensions, economic uncertainty and heightened market volatility. This places investors in unchartered territory, and susceptible to large market swings, requiring more resilient portfolios that are able to weather the Trump storm while still being able to participate in the opportunities that may arise through the uncertainty.

The traditional 60/40 type balanced portfolios have served well, relying on the historic relationship between stocks and bonds to achieve portfolio diversification. This is because historically, stocks and bonds tended to move in opposite directions, providing a hedge against each other. With the ongoing trend of rising correlations between stocks and bonds this historic relationship has changed making the traditional 60/40 portfolio less diversified as they could be.

Mark Twain said it best, “It isn't what you don't know that gets you in to trouble, it's the things that you know for sure… that just ain't so”, meaning that the real danger lies in believing something is true (i.e. well diversified) when in fact it isn’t anymore.

To solve for this, investors have been incorporating more alternative investments or private market investments to their portfolios, shifting towards a portfolio of 40% stocks, 30% bonds and 20%-30% in private markets. According to the Global Pension Assets Study 2024, allocation to alternative assets increased from 11.7% in 2003 to an estimated 20.1% at the end of 2023.

The key reasons for incorporating private market exposure with traditional funds (60/40) is that private market investments such as private equity, mezzanine debt, private debt, and infrastructure tend to behave differently than typical stocks and bonds allowing them to lower volatility, enhance returns and provide better diversification and improved portfolio resiliency.

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