Navigating the Late-Cycle: 5 Strategies for Building a Resilient Portfolio

Posted by Bedrock on 2nd June 2025

As the global economy likely moves into the late stage of the business cycle—characterised by slower growth, rising volatility, and limited upside for risk assets—investors face a more uncertain landscape.

Ongoing US policy unpredictability and tariff-related concerns continue to weigh on sentiment, with markets closely watching whether hard data such as GDP and unemployment will begin to reflect these headwinds.

In this article, we discuss five key strategies investors can use to strengthen and position their portfolios in preparation for a more challenging market environment.

1 Maintain broad diversification across asset classes and regions

Keeping investments diversified is one of the most effective ways to help investor’s portfolios weather market volatility—especially as we move deeper into a late stage of the economic cycle. Depending on your personal risk tolerance, it’s wise to spread exposure across different asset classes.

In equities, we lean toward high-quality, large-cap companies that tend to be more stable during uncertain times. In fixed income, investment-grade government bonds and credit can offer greater security. For alternative investments, consider adding defensive assets like gold, or hedge fund strategies such as global macro or relative value, that are uncorrelated to stock market returns.

Geographic diversification is equally important. A mix of US and European equities can help balance regional risks, and depending on your profile, a modest allocation to Asian markets—including Japan and emerging Asia—could add further resilience. Recent market pullbacks have underscored the value of going beyond concentrated themes like the “Magnificent 7.” Defensive sectors and high-dividend stocks, for example, held up better during the latest market sell-off.

As we approach the later part of the cycle, portfolios can benefit from balanced exposure to various factors in equities such as — growth, quality, and value—rather than relying too heavily on what worked earlier in the cycle.

2 Stay aligned with your risk profile

For the long-term portion of a portfolio, it remains essential for investors to stay within their strategic asset allocation and aligned with their overall risk tolerance. This disciplined approach is key to navigating heightened market volatility. As is well understood, timing the market consistently is extremely difficult— if not impossible. Equity rallies and rebounds after a drawdown can happen very quickly, so rather than attempting to step in and out of the market in response to volatility, it is better to stay invested in strategic investments to avoid missing the market’s best days. It is crucial to get your asset allocation right to ensure you can tolerate the amount of risk you are taking.

In the current environment, portfolios may benefit from a tilt toward quality stocks—companies with strong fundamentals, pricing power, and consistent earnings quality. Portfolios can also benefit from adding high-dividend stocks, which have lower volatility and tend to perform better during market corrections.

For the short-term portion of portfolios—intended for near-term spending—more conservative allocations such as short-dated, investment-grade government bonds and credit can help preserve capital while providing some yield.

3 Adopt a more defensive fixed income approach

As we approach the latter part of the cycle, credit spreads are likely to widen from the current low levels, as corporate fundamentals come under more pressure from a deteriorating macroeconomic environment. Although corporate fundamentals remain solid for now, it might make sense for investors to move up in credit quality within their fixed income allocations. Investment-grade bonds and credit are generally preferred over high yield in this environment.

In long-term portfolios, we prefer keeping fixed income duration in line with the benchmark, measured by the Bloomberg Global Aggregate Index*, to avoid potential excessive volatility of longer-dated bonds.

Geographic diversification in fixed income is also important. Exposure to both US and European markets provides balance, particularly as monetary policies diverge. The US Federal Reserve may delay rate cuts, while the European Central Bank and Bank of England are expected to move ahead with rate cutting cycles in the near term—potentially supporting the value of European fixed income instruments.

4 Use gold as a strategic hedge

Although gold has rallied 25% year-to-date, there is further potential for upside on continued demand from central banks and retail investors – and with geopolitical uncertainty remaining a feature of the environment in at least the near and medium term. Historically, gold has served as a reliable hedge during recessions and periods of global tension. Lower interest rates in the future should also make gold more attractive as a safe haven asset. We prefer to have long-term exposure to gold as part of a diversified portfolio.

5 Apply downside risk management tools

For investors with lower tolerance for short-term volatility, you may use put options, for example on stock indices, to hedge some of your equity exposure. Premiums paid for put options can be expensive, so it is important to put these hedges in place during low volatility periods when their cost is lower. One way to reduce the premiums paid on portfolio protection is by using put spreads, where downside protection is limited, or other option strategies.

Investors may consider opportunistically adding structured products with full or partial downside protection, which would allow participation in the market while limiting downside. These instruments can be used to replace some long-only exposure to equity ETFs or single-line stocks. However, with the use of structured products, it is important to limit exposure and stay diversified.

*The Bloomberg Global Aggregate Index consists of global investment-grade government and corporate bonds and has a duration of 6.5.

If you have any questions about the themes discussed in this article, please do not hesitate to get in contact with us: info@bedrockgroup.ch

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