Heading into 2026, investors face three issues: a scarcity of growth, a scarcity of capital and a scarcity of certainty.
To battle that, we need a three-prong strategy. You need to anchor your portfolio into highly profitable companies, but you need to cast a wider net for sources of returns, and you need to be actively reducing volatility.
To find high-profitability companies, the US still remains an important allocation, but we’re also seeing a broadening of earnings growth and profitability across global equity markets. That not only helps you cast a wider net, but it also helps you with diversification.
In Japan, we’re seeing corporate governance reforms. In Europe, some fiscal stimulus around defense spending ignited a value rally, but quality companies have not rallied yet, and there’s still a lot of opportunity there.
And in emerging markets, we see a broad set of themes that can continue to drive those markets higher—digital transformation, the rise of consumer spending and, in some markets, improvements in corporate governance. On top of that, continued weakness in the US dollar would be an additional catalyst.
On Volatility
The biggest risk that investors face is the complacency about risk. You never know which headline is going to trigger a market-moving event. If you remember through last year, we had DeepSeek in January; we had the tariff announcement in April; we had the jobs report on August first that set off a speculative growth rally.
To prepare for that volatility, investors need to think about a number of strategies. Being defensive is one of them, but so is diversification. We need to diversify across styles and across regions. Even in strategies that seek higher returns, we need to understand that we have concrete risk mitigation strategies when volatility does erupt.
The End of US Exceptionalism?
There’s an ongoing debate about US exceptionalism. We don’t expect sustained structural US underperformance. US companies have a lot of advantages—access to capital, innovation and high corporate profitability—but the gap that we’ve seen to other markets could start to narrow. We have catalysts, such as corporate reform in Japan, capital discipline in Europe and emerging profitability across emerging markets.
That spells opportunities for diversification.
AI—Bubble or No Bubble?
One popular question today is, are we in an AI bubble? I actually think it’s too simplistic of a question for such a complex issue. AI is such a major force across markets, across the breadth of companies it affects, as well as across the economy. We have to understand the risks that it poses, including the concentration it has led to in markets.
We believe investors need to manage crowding risk and think more broadly about all the beneficiaries to the technology beyond just the current leaders. You need AI exposure, but you need to be selective and diversified.
Quality Matters
2025 was a very difficult year for quality companies. In an environment where the Fed was about to cut rates, investors got very excited about speculative growth companies.
There’s a lot of opportunities and attractive valuations that can be found in the US, in Europe and across the world. Quality companies are companies with durable profitability that can generate long-term earnings growth. History tells us that investing in these companies is an important strategy for generating long-term returns.