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Resilience and opportunity in volatile times
Published 02 June 2025
So far this year, markets have been volatile, buffeted between geopolitical tensions, shifting monetary policy, and high-stakes trade negotiations. We spoke with Jason Katz, managing director and senior portfolio manager at UBS, whose team oversees approximately USD 7 billion in assets for high-net-worth and ultra-high-net-worth clients, about what’s driving sentiment and how investors can navigate the landscape.
How you would characterise the current market sentiment, given the recent volatility?
Jason Katz: At the moment, it’s a bit of a volatile stock. You have to anticipate the volatility in order to enjoy the long-term returns. If you don't have the stomach for this way of working, you probably should only tune into the news once a month, because if you tune in too often and react too much, you could be on the wrong side of a lot of different investment trends.
However, now that the two largest global economic leaders, China and the US, are in agreement, at least in principle, on trade, I think you're going to see a lot of other countries fall in line. That all being said, the stock markets are up well over 20 percent plus from the lows of early April. I think we're losing sight a little bit of the fact that some of the consequences of that uncertainty will lead to a difficult earnings period.
On the other side of that will be more stable earnings later in the year, now that business leaders have clarity in terms of tariffs. It's sort of like your veggies and dessert. We had to eat the veggies with everything we've dealt with in the trade talks, but now the dessert will be deregulation and the likely extension of the tax cuts.
Given the current environment, how can individuals adjust their asset allocations to achieve stable returns?
We never recommend precipitous changes. Investments should be predicated on a well-constructed financial plan. You should have a well-balanced portfolio and be diversified.
That being said, we think that elevated bond yields create a great opportunity for those looking for durable income. We still think gold should be a key consideration in a portfolio as a hedge from the equity markets.
We also like not blindly buying the S&P 500. Market cap weighted indices have ruled the day up until recently, but because they are weighted by market cap that means that the top seven stocks basically control performance. We like owning more equally across the S&P, instead of just the so-called ‘Magnificent 7.’
We’re leaning toward value investing over growth, considering the disparity in valuation. We love municipal bonds. The tax equivalent yields for the highest earners in a state like New York, if you go out 20 to 30 years, are 8 percent to 8.5 percent.
And we’re definitely allocating more to alternative investments. Hedge funds that don’t just play one side of the market are well-positioned in this environment.
Are there specific sectors or emerging technologies that look particularly promising?
We're looking at thematic areas like AI infrastructure – utilities, grid modernisation, and electrification – all critical to supporting the growth of generative AI, which has massive energy demands. The amount of energy is just really intensive. It takes about 120 times more energy for ChatGPT to generate a six-second video than it does to fully charge your iPhone. So we're forecasting over USD 4 trillion in electrification spending. In fact, the grid hasn’t been upgraded in 50 years.
Healthcare looks really interesting as well, simply because the baby boomers are aging and living longer, with a much greater need for medicines. Trump’s recent announcements surrounding capping costs have created some uncertainty, but that has led to a better entry point.
Cybersecurity is another area. Whether you're a school, a hospital, or a business, you have to allocate a budget towards cyber because you can ill afford to see your business go down or information be compromised.
What geographic diversification strategies should investors prioritise this year?
International investing is finally starting to work. If you had international holdings for the better part of 10 years, you grossly underperformed the S&P. But diversification is finally working again.
Post Liberation Day, money has been rotating into international investments, partly because of a backlash against the US, and party because people in Europe and elsewhere expressing more of a home bias.
Europe probably is going to spend much more on their defence than in years past. Also, regional valuations, even though they’ve run up, are much cheaper than in the US.
What private market opportunities are interesting right now?
In private markets, private credit, which is lending outside of traditional banking, is one of the most active areas. It’s getting crowded, but we’re seeing private companies increasingly favor non-bank lenders – there’s less red tape, and the capital is often more flexible. Even as the Fed eventually cuts rates, private credit is still likely to generate superior returns compared to traditional taxable fixed income.
In private equity, we like buyout funds and secondaries – buying from distressed or motivated sellers. The easing of regulations is poised to bring a pickup in mergers and acquisitions and IPOs, which benefits private equity.
For hedge funds, long/short strategies which both buy and short stocks and merger arbitrage are attractive. Merger arbitrage funds, which capitalise on price differences during corporate takeovers, benefit from a low correlation to equity markets and high correlation to deal activity.
In real estate, logistics and data centres are in demand, especially in regions like Europe where the e-commerce infrastructure isn’t as developed. Self-storage and student housing also look strong.
The federal estate tax exemption is set to nearly halve in 2026, what strategies should individuals consider?
With a GOP-controlled Congress, the likelihood is that the tax cuts will be extended, including the exemption. But regardless, every individual should have an estate plan. Make your annual gift exclusions of USD 19,000 per person for couples and consider paying medical and educational costs for loved ones. Most importantly, use your USD 13.9 million exemption through lifetime gifts rather than waiting until death.
Spousal lifetime access trusts offer a way to access assets indirectly through a spouse in an emergency. Gifting discountable assets, such as business interests, into trusts is also common. On the philanthropic front, donor-advised funds offer flexibility and generous deductions – cash donations up to 60 percent of AGI. Private foundations provide more control and can be valuable tools for teaching younger generations about values and governance.
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