Trump, tariffs, and turmoil: Why investors are seeking alternatives

Volatility is an inherent feature of public markets, and the recent rapid swings in asset prices have reinforced this fundamental truth. Trump’s trade policies saw markets swing wildly in April, and with ongoing tariff uncertainty and rising geopolitical tensions, volatility in markets seems unrelenting. 

Today, US stocks account for over 70% of the MSCI World Index, and Australia is no exception to this, with US equities making up an increasing proportion of investor portfolios. In recent times, this overexposure to the US has delivered outperformance, driven largely by the Magnificent 7 tech darlings. However, heightened volatility and softening performance is reminding investors why we should not have our nest eggs in one basket.

In buoyant times, it is easy to overlook the role of the steady and stable parts of a portfolio—the conservative income-generators that do not make headlines. Yet, these are exactly the assets that provide stability when everything else is in flux. Traditionally, multi-asset portfolios have relied on the negative correlation between bonds and equities for diversification. However, increasingly we are seeing a positive correlation in public markets. 

The year 2022 was an extreme example, when both bonds and equities suffered significant correlated declines, and this has been repeated in the most recent bout of market volatility. With the traditional 60/40 portfolio no longer proving a robust stronghold, investors are rethinking diversification.

Uncorrelated, alternative, and unlisted assets that provide true diversification have risen to the occasion and surged in popularity. Private credit, for example, now accounts for 17 percent of Australia’s commercial real estate debt market, and the global private credit market is set to double to USD $2.8 trillion by 2028. With bonds no longer providing the standalone hedge investors need, alternatives are increasingly being sought to stabilise portfolios and generate consistent returns across market cycles. One emerging model, the 25/25/25/25 portfolio, allocates evenly across equities, fixed income, alternatives, and private markets to balance risk, enhance returns, and build resilience in today’s structurally different environment.

Private credit fits this mandate as returns are typically linked to interest rates, not market sentiment, offering stability even amid shifting government policies or macroeconomic uncertainty. Real estate private credit loans are commonly structured with floating interest rates, meaning returns move in line with the prevailing cash rate. While total returns may fluctuate with rate movements, when rates fall, the margin above the benchmark remains consistent. 

At Zagga, for example, we target a return of 400 to 500 basis points above the RBA cash rate, regardless of where we are in the interest rate cycle. This alignment to interest rates provides a built-in hedge that is absent in traditional fixed income securities such as government bonds, which typically lose value when interest rates increase. It also helps smooth returns over time when compared to the volatility experienced across other asset classes. For these reasons, investors seeking predictable income and capital preservation, especially in uncertain times, are turning to private credit.

Australia’s private credit market remains nascent but is gaining rapid traction, increasingly luring investor attention away from larger markets such as the US and UK. This scale presents investors with compelling opportunities. Amidst persistent global uncertainty and rising concerns about a US recession, Australia’s robust economic fundamentals provide a number of strong tailwinds for the continued growth of real estate private credit, with demand rising from both local and offshore investors. A key factor driving this growth is Australia’s structural shortage of residential housing. Current estimates suggest the country is building only 167,000 to 180,000 new dwellings per year, while underlying demand requires closer to 240,000 annually, leaving a yearly shortfall of 60,000 to 70,000 homes. If current trends persist, this cumulative shortfall could reach between 300,000 and 400,000 dwellings by 2029, particularly in capital cities.

This housing imbalance is compounded by reduced bank appetite for construction lending, influenced by higher capital requirements, tighter regulatory constraints, and increased risk sensitivity. These conditions are opening up institutional-grade private credit opportunities for investors. In response, both sides of politics are promoting plans to increase housing supply, but meeting future demand would require doubling the current pace of delivery. At the same time, in a falling interest rate environment, we expect to see a higher level of commercial property transactions, as lower borrowing costs and improved sentiment support buyer activity and capital flows into real assets. 

As a result, institutional money is flowing back towards property. In times of uncertainty, investors continue to view real assets—particularly industrial, logistics, healthcare, and essential services-based retail—as defensive due to their income-generating characteristics. Meanwhile, Australia’s housing market, underpinned by structural undersupply and population growth, is well positioned to demonstrate resilience across the economic cycle.

Amidst Trump, tariffs, and share market turmoil, investors are reassessing traditional portfolio strategies. As fixed income increasingly correlates with equities, the classic 60/40 model is losing its defensive appeal. Forward-looking investors are responding by adopting a more diversified framework—25/25/25/25, an equal allocation across equities, fixed income, alternatives, and private markets. At Zagga, we believe this approach better aligns portfolios with today’s market realities, offering a path to more stable, risk-adjusted returns. By incorporating private credit, investors can capture the benefits of uncorrelated income streams and build resilience in an uncertain environment.

Disclaimer: This article is general information only and does not constitute financial product advice. Advisers should consider their clients’ circumstances and obtain independent advice before making any investment decisions.

About Zagga: Zagga is a leading Australian alternative real estate investment manager founded in 2016. Headquartered in Sydney, with offices in Melbourne and Singapore, Zagga is committed to delivering attractive, risk-adjusted investor returns and tailored private credit solutions across the capital stack. A leader in their chosen niche of mid-market loan sizes ranging from $5 million to $75 million, the firm serves a growing base of wholesale investors, including HNW individuals, family offices, and quasi-institutional funders from Australia, China, Hong Kong, Israel, Japan, Mauritius, Singapore, South Africa, Switzerland, the UK, and the USA. Since inception in 2017, Zagga has repaid over $1 billion in principal and interest across more than 150 successful exits.

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