Alternative Investments Midyear Outlook: Looking Beyond Market Beta
Michael McClain | Alternative Investment Research Analyst and Due Diligence
Last Updated: July 09, 2026
Alternatives Gain Importance as Market Complexity Rises
As highlighted in LPL Research’s Midyear Outlook 2026, Policy, Buildouts & Bottlenecks, investors continue to navigate a market environment shaped by evolving policy decisions, geopolitical uncertainty, and shifting economic expectations. Against this backdrop, maintaining a diversified and balanced portfolio has become increasingly important, particularly as traditional asset classes face periods of heightened correlation and elevated volatility. The first half of 2026 has been marked by heightened uncertainty. Shifting interest rate expectations, persistent geopolitical tensions, and ongoing policy ambiguity have created a challenging environment for investors and have tested the resilience of traditional portfolio construction. In our view, these dynamics continue to expose some of the limitations of the traditional 60/40 portfolio and reinforce the case for thoughtfully incorporating alternative investments as a source of diversification, flexibility, and differentiated returns
Liquid Alternatives: Benefiting from Growing Dispersion
One of the defining features of today’s market environment is rising dispersion across both sectors and individual companies. Structural changes, particularly the rapid adoption of artificial intelligence (AI), are creating a widening gap between corporate winners and losers. Companies effectively deploying AI are experiencing improvements in productivity, margins, and earnings growth, while firms with weaker digital capabilities or outdated business models face increasing competitive pressure.
This backdrop creates an attractive opportunity set for long/short equity managers. Elevated stock-specific volatility provides fertile ground for active security selection, allowing managers to express high-conviction long and short views. For market-neutral strategies in particular, growing dispersion and declining correlations among stocks improve the ability to generate returns driven by company fundamentals rather than broader market direction.
Higher interest rates and tighter financial conditions could further amplify these opportunities. As investors become increasingly selective, business quality, balance sheet strength, and operational adaptability are likely to become more important drivers of performance. In this environment, alpha generation depends less on market beta and more on identifying relative winners and losers.
Global macro strategies are also benefiting from the current landscape. Diverging monetary policies among major central banks, ongoing sovereign yield curve adjustments, and geopolitical uncertainty have reintroduced attractive opportunities across currencies, interest rates, and commodities. Discretionary macro managers can capitalize on economic and policy shifts, while systematic approaches, including managed futures, continue to offer valuable diversification.
We remain constructive on managed futures strategies, particularly those employing a diversified blend of trend-following, volatility breakout, pattern-recognition, and short-term trading approaches. Although current positioning across some managers warrants monitoring given the level of long equity exposure, trend-following strategies continue to provide valuable convexity and have historically demonstrated resilience during periods of market stress.
Private Assets: A More Selective Opportunity Set
Opportunities within private markets remain compelling, but investor success is becoming increasingly dependent on manager selection and operational expertise. The era of abundant liquidity and multiple expansion has largely given way to a market driven by discipline, selectivity, and value creation.
Infrastructure continues to stand out as a core allocation. The asset class offers stable, often inflation-linked cash flows, supported by strong pricing power and high barriers to entry. Beyond its traditional defensive characteristics, infrastructure is also benefiting from powerful secular growth trends, including digital infrastructure investments such as data centers, fiber networks, and the broader AI ecosystem.
Private credit also remains attractive. Improved underwriting standards, stronger lender protections, and more disciplined deal structures have enhanced the quality of recent vintages. While portions of the market continue to work through legacy challenges, the broader foundation of the asset class appears healthy, positioning private credit as a compelling source of income in a higher-rate environment.
Private equity, however, has become more nuanced. Elevated valuations, slower exit activity, and a growing backlog of unrealized investments have increased the importance of manager skill. We expect performance dispersion between top- and bottom-quartile managers to widen as operational execution increasingly replaces financial engineering as the primary driver of value creation. Areas of particular interest include secondaries, which may benefit from liquidity-driven discounts, as well as specialized buyouts, corporate carve-outs, and AI-related investment opportunities.
LPL Research Takeaway
Markets are increasingly being shaped by dispersion, structural change, and rising complexity. Against this backdrop, alternatives can play an increasingly important role in enhancing portfolio resilience, diversification, and return potential. Elevated single-stock volatility should continue to support long/short equity strategies, while diverging monetary policies and geopolitical uncertainty create a constructive environment for global macro managers. Across private markets, infrastructure and private credit remain attractive, while private equity success will likely depend more than ever on manager selection and operational expertise. As investors navigate an evolving market landscape, alternatives remain a valuable tool for building more durable portfolios.
Important Disclosures
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors. To determine which investment(s) may be appropriate for you, please consult your financial professional prior to investing.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk.
Indexes are unmanaged and cannot be invested into directly. Index performance is not indicative of the performance of any investment and does not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
This material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
Unless otherwise stated LPL Financial and the third party persons and firms mentioned are not affiliates of each other and make no representation with respect to each other. Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services.
Asset Class Disclosures –
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
Bonds are subject to market and interest rate risk if sold prior to maturity.
Municipal bonds are subject and market and interest rate risk and potentially capital gains tax if sold prior to maturity. Interest income may be subject to the alternative minimum tax. Municipal bonds are federally tax-free but other state and local taxes may apply.
Preferred stock dividends are paid at the discretion of the issuing company. Preferred stocks are subject to interest rate and credit risk. They may be subject to a call features.
Alternative investments may not be suitable for all investors and involve special risks such as leveraging the investment, potential adverse market forces, regulatory changes and potentially illiquidity. The strategies employed in the management of alternative investments may accelerate the velocity of potential losses.
Mortgage backed securities are subject to credit, default, prepayment, extension, market and interest rate risk.
High yield/junk bonds (grade BB or below) are below investment grade securities, and are subject to higher interest rate, credit, and liquidity risks than those graded BBB and above. They generally should be part of a diversified portfolio for sophisticated investors.
Precious metal investing involves greater fluctuation and potential for losses.
The fast price swings of commodities will result in significant volatility in an investor’s holdings.
This research material has been prepared by LPL Financial LLC.
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