Developed markets

Although recent years have delivered strong double-digit returns across major indices, elevated US valuations, driven by AI enthusiasm and ample liquidity, together with the risk of US-Iran conflict, heighten risk – especially with the potential inflationary impulse and policy response.

Emerging markets

Stronger relative growth, widening valuation discounts and a potentially weaker dollar support emerging market prospects for the second half of the year, though tariff risks, trade tensions and broader geopolitical risks remain key watchpoints.

Government bonds

Government bonds have delivered solid returns in recent years, supported by high starting yields and steadier rate expectations. Looking ahead, policy rates are set to converge, with the US and UK easing, Japan tightening gradually, and Europe remaining relatively stable. However, with the spectre of the US-Iran war and the knock-on impact on inflation looming, the yield curves have steepened, and we expect to see some volatility manifest. Whilst government bonds now offer some downside protection, it is worth recalling 2022, when that proved less reliable – a mix of regions remains critical to avoid undue exposure to any one fiscal pathway.

Corporate bonds

Corporate bond yields have edged lower as rates fell and spreads tightened, led by the US dollar market, while European investment grade finished broadly unchanged. Credit spreads relative to government bonds remain close to historic lows. We are wary of downside risks in some sectors, and particularly in private credit. Ultra-tight spreads, slowing growth, tricky monetary policy decisions and external pressures such as tariff uncertainty could challenge credit markets over the medium term.

Private credit has grown rapidly since the financial crisis. However, the scale and speed of growth also warrant caution. Recent experience has highlighted that risks can surface quickly, with several failures raising concerns around lending standards, covenant protection, valuation marks and the ability of weaker borrowers to refinance in a higher-rate environment. Default rates have remained contained so far, but this may understate latent stress if growth slows, liquidity tightens or recovery values disappoint.

For investors, manager discipline is essential: selecting lenders who maintain rigorous underwriting standards rather than chasing yield. Whilst private credit promises to add income, the downside is often less visible than in public markets.

Traditional markets are driven largely by macro forces like rates and growth, leaving returns closely tied to the economic cycle. To improve diversification, we’re adding other return sources such as cross-asset momentum and volatility risk premium, which tend to behave differently from equities and bonds.

These strategies have historically shown low correlation with traditional assets, helping portfolios stay more resilient during periods of stress. Cross asset momentum, for example, has delivered returns in scenarios where other asset classes have struggled – including the Global Financial Crisis, and the 2022 drawdown. Even small allocations can greatly enhance risk-adjusted returns, reducing reliance on macro conditions and adding an extra layer of protection when volatility spikes.

Commercial real estate is still regaining ground after higher interest rates, with recent quarters delivering steady but muted returns versus public markets. Rental growth is emerging in select areas, especially in Europe, though analysts expect performance to diverge widely across sectors and locations. The near-term outlook is cautiously positive.

Private equity endured another stop-start period, with momentum stalling amid tariff uncertainty before activity improved more recently. The key question for 2026 is whether deal flow can truly accelerate or if “extend and pretend” will continue to dominate. The outcomes are hugely deal and sector dependant.

Infrastructure remains a long-term theme. Although activity has been quieter since the 2021-2022 boom, momentum is improving as economies invest in AI buildout, urbanisation, energy transition and climate resilience.

For investors, infrastructure continues to offer stable, inflation-linked cash flows, but stretched public finances mean private capital will play an even larger role. Selectivity is crucial: core assets face return compression, so focusing on strong fundamentals and avoiding political or technological obsolescence risks is key.