Why diversifying a portfolio could take more than just equities and bonds

For the best part of three years, artificial intelligence (AI) has been the defining market force, propelling the S&P 500 to record highs, while also catalysing three $1 trillion sell-offs so far this year.

Amongst long-term investors, this type of volatility has traditionally been combated by holding a broad portfolio, often a mix of equities and bonds, with exposure spread across many sectors.

However, this approach can falter when a single theme dominates the market, as AI now appears to. Thus, even a portfolio holding hundreds of individual stocks can still be vulnerable if they are all driven by the same underlying forces.

Investors may now need to think beyond solely traditional asset classes and could consider incorporating a range of alternatives to more robustly insulate their portfolio – you should form your own view.

What alternative assets could you consider? How are the return drivers different? Can they still provide exposure to the major market trends? Is it difficult to manage these within a broad portfolio? What risks should investors consider? Are there benefits to a professionally managed solution?

Diversifying a portfolio with alternatives doesn’t mean ignoring megatrends like the AI boom. Instead, you could look behind a trend to identify those companies and asset classes that could be natural beneficiaries, but with distinct return drivers and risk characteristics.

In the case of AI specifically, global data centre spending appears on course to exceed $1 trillion in 2026, with forecasts revised sharply higher through the year as Hyperscalers race to deploy vital infrastructure.

At the same time, the resource constraint appears to have moved from compute capacity to the electricity needed to power this infrastructure, leaving US data centres with an energy shortfall estimated between 50 and 80 gigawatts by 2030. Even the lower-end estimate is equivalent to the power consumption of more than nine New York Cities.

This has presented an opportunity for alternative investment managers, particularly in the infrastructure sector, who can provide the long-term capital needed to grow this capacity.

For instance, Brookfield Infrastructure Corporation, the listed infrastructure investment company managed by Brookfield Asset Management (BAM), has been rotating capital into AI-linked infrastructure. In late 2025, BAM launched a $100 billion AI infrastructure program in partnership with NVIDIA. More recently, in July 2026, BAM announced a partnership with NextEra Energy for a $100 billion data centre facility in Kentucky, aiming to deliver 1.2 GW of compute capacity and 4.6 GW of dedicated power generation by 2032.

Brookfield also announced an expansion of its partnership with fuel cell manufacturer Bloom Energy to $25 billion up from $5 billion. This should enable the company to offer renewable energy generation that sits outside of existing grid infrastructure, providing another way of meeting the growing demand for power.

This exposure to the critical infrastructure that underpins the broader AI trend could allow Brookfield to be a beneficiary of the trend while generating more stable returns from long-term leases with predictable cash flows.

Brookfield’s unique position and private infrastructure’s diversifying quality are two of the reasons for Brookfield Infrastructure Corporation’s inclusion within the Wealth Club Portfolio Service, alongside its track record of delivering long-term dividend growth. Dividends are not guaranteed and past performance is not a guide to future returns.

Opportunities can sometimes emerge from bouts of high volatility in public markets.

This has arguably been the case within listed property, which has spent much of the past five years being treated by investors as a casualty of interest rate uncertainty, and frequently held back when bond yields rose.

Yet beneath the volatility, occupier demand across large parts of the commercial property market has stayed resilient, and with new supply remaining scarce, there were instances of assets in noticeably better financial health than their share prices implied.

This was further highlighted following an acquisition offer for Segro, Britain's largest listed property company, specialising in industrial property such as warehouses and data centre sites.

After an initial proposal of around £12.6 billion, a series of escalating offers saw a final bid of £14 billion being recommended to shareholders by Segro's board. This valued the company at a 39% premium to where its shares had traded before the offer, suggesting potentially significant under-pricing in the market.

Despite the strength seen in pockets of commercial property such as logistics, many funds were tarred with the same brush, stemming from fears of interest rate sensitivity and overleverage. This type of indiscriminate sell-off could present an opportunity for other commercial property landlords, if lagging share prices have drifted away from the value of the underlying property holdings and the income those buildings generate.

To gain exposure to this potential sector-wide uplift, the Wealth Club Portfolio Service holds a position in the TR Property Investment Trust, a FTSE 250 fund investing across listed European property companies alongside a smaller direct portfolio.

This fund aims to provide a one-stop shop for investors seeking European property exposure, run by a team that has a strong track record of finding value in the sector, and has historically delivered long-term dividend growth as a result. Dividends are not guaranteed and past performance is not a guide to the future. By including a fund such as this within the portfolio, it helps to further incorporate alternative sources of returns.

Listed private equity funds can also play a role in broadening out a portfolio’s exposure to global stock markets.

Private equity managers are often said to be able to “create their own luck”, by using their experience to add value to private businesses, either by growing earnings, making a business more efficient, completing bolt-on acquisitions or driving regional and international expansion. While there is no guarantee these efforts will be successful, private equity managers can often play a more active role in shaping outcomes than investors in publicly listed companies. These managers can also benefit from a longer-term investment horizon than many publicly listed competitors, whose leadership teams are often incentivised to take a short-term view.

One such example of this in the Wealth Club Portfolio Service is HarbourVest Global Private Equity, the largest private equity fund-of-funds listed on the London Stock Exchange, by market capitalisation. It provides exposure to a portfolio of more than 1,000 private equity, growth and venture funds, equivalent to almost 15,000 private companies, including Databricks, Anthropic, and Revolut.

However, investors should note, listed private equity trusts are highly volatile and their share prices can often deviate significantly from their net asset value. These are high risk investments and they may be best suited to a modest allocation within a diversified portfolio.

However, despite the benefits of integrating alternatives within a portfolio, this asset class can bring complexity. Furthermore, not all managers are created equal, and regularly evaluating these holdings can be challenging and laborious for individual investors.

This is where a professionally managed solution could be useful, as it removes the need for an investor to take on the fund selection and monitoring process, while also ensuring that any exposure provides diversification benefits without also acting as a drag on performance.

Within our Portfolio Service, we offer five professionally managed portfolios, each with a different risk level and investment objective, but all including exposure to these alternative assets.

This service uses investment trusts and overseas investment companies to gain access to what we regard as world-class managers operating within Private Infrastructure and Private Equity.

We also ensure these allocations are fully embedded into a wider investment strategy, with the portfolios also containing varying concentrations of global equities and bonds, across thirty to forty-five carefully selected funds.

However, it is important to remember that returns are never guaranteed, and any investment will involve accepting a degree of risk. Furthermore, as the service is non-advisory and does not provide personal recommendations, an investor must decide for themselves which, if any, of the portfolios is right for them.