Our multi-asset outlook for 2026

At the start of this year, there were large swaths of the global stock market trading at levels that were truly “cheap”.  The UK, Europe, Asia ex-Japan and emerging markets were obvious candidates.

It is tempting for investors to try and read the runes to look for “catalysts” to activate an unloved market. This can be a very difficult game and sometimes markets will move without an obvious catalyst. The performance of the UK stock market over the course of 2025 is surely a testament to this. There has been negligible objectively positive news on the UK over the course of this year. From the perspective of news flow, we have plodded along with a continuation of the long-established narrative of an unspectacular economy, inflation a bit high, a government focusing on short-term challenges rather than long-term structural reform, boring stocks dominating the market, and a lack of domestic investment culture.

Yet, we are on course to see the best calendar year return from the UK stock market since 2009. We think what has happened in the UK (and indeed in Asia ex-Japan and emerging markets) is that the underlying value of companies has been recognised and the ambivalent (or worse) sentiment has diminished in significance.

What about the outlook from here? The US stock market is unusually concentrated and expensive. AI remains a compelling and genuinely exciting proposition for humanity and the global economy, and we are only just scratching the surface of what is possible. Much as we could not hope to envisage the Internet’s ubiquitousness in 2020, likewise we cannot hope to fathom what AI and quantum computing will look like for us come 2050.

As a result, it is perfectly reasonable to be positive on AI’s prospects without adhering to the perceived wisdom that the companies leading the charge today have sustainable valuations.  The Magnificent 7 are priced very richly on once in a generation levels of profitability; a heady mix that, through the lens of history, we see typically does not end well for investors.

How long it takes for this to happen remains to be seen but the good news for investors is that there are plenty of enticing long-term opportunities available outside the AI zeitgeist. While markets other than the US have moved from “cheap” levels, they are not expensive and we believe are at levels that justify allocations that are greater than would be attained through a naïve market capitalisation approach.

The trend in 2025 of many unloved and unglamourous markets leading the way could continue if the marginal investor tires of US exceptionalism, AI, the Treasury or the US dollar. We also believe these offer excellent opportunities for active managers. Relentless index flows are price indifferent and provide indisputable momentum to the “haves” at the top of an in-favour bourse. This has led to market distortions that we have rarely seen. While the value style has made up some of its lost ground against growth over the course of the year, quality stocks and smaller companies remain overlooked. We believe these areas offer excellent opportunities for active managers to add value in 2026 and beyond.

Fixed income markets continue to provide valuable diversification opportunities. Investors in government bonds today receive a real yield, and the fact that rates are significantly greater than zero provides ample scope for capital appreciation through the reduction in yields in times of market stress. The yield payable on UK government debt today is more than four times the lows of 2022 (4.5% compared to 1%) and a barely believable 26 times the levels they were five years ago (4.5% compared to 0.17%).

So far, credit markets do not display too many signs of stress. Some defaults are inevitable, but the levels have not moved up to a noteworthy degree. High yield and investment grade credit yields are higher today than five years ago. But because yield spreads are low, proportionately the increase on 2020 levels is relatively small – for example, global high yields have moved from 4.85% in 2020 to 6.71%. We believe the yields of over 6.5% are a worthy addition to a portfolio given the relatively elevated status of lenders to these businesses in the event of default.  

We do not profess to be able to forecast with any accuracy what 2026 will bring. What we can say with some certainty is that the global economy is in reasonable shape.  Expectations for growth globally are still in the low-to-mid single digits, which, while unspectacular is also not unhelpful. Inflation seems to have a lid on it, although there remain uncertainties as to whether tariffs in the US will eventually lead to an inflationary impulse in the US.

As we approach another year of the good, the bad and the unexpected, we still believe the key is to focus on a disciplined process along with diversification and differentiation.

KEY RISKS

Past performance is not a guide to future performance. The value of an investment and the income generated from it can fall as well as rise and is not guaranteed. You may get back less than you originally invested.

The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.

We recommend this fund is held long term (minimum period of 5 years). We recommend that you hold this fund as part of a diversified portfolio of investments.

The Funds and Model Portfolios managed by the Multi-Asset team may be exposed to the following risks:

• Credit Risk: There is a risk that an investment will fail to make required payments and this may reduce the income paid to the fund, or its capital value;
• Counterparty Risk: The insolvency of any institutions providing services such as safekeeping of assets or acting as counterparty to derivatives or other instruments, may expose the Fund to financial loss;
• Liquidity Risk: If underlying funds suspend or defer the payment of redemption proceeds, the Fund's ability to meet redemption requests may also be affected;
• Interest Rate Risk: Fluctuations in interest rates may affect the value of the Fund and your investment. Bonds are affected by changes in interest rates and their value and the income they generate can rise or fall as a result;
• Derivatives Risk: Some of the underlying funds may invest in derivatives, which can, in some circumstances, create wider fluctuations in their prices over time;
• Emerging Markets: The Fund may invest in less economically developed markets (emerging markets) which can involve greater risks than well developed economies;
• Currency Risk: The Fund invests in overseas markets and the value of the Fund may fall or rise as a result of changes in exchange rates;
  Index Tracking Risk: The performance of any passive funds used may not exactly track that of their Indices.

The risks detailed above are reflective of the full range of Funds managed by the Multi-Asset team and not all of the risks listed are applicable to each individual Fund. For the risks associated with an individual Fund, please refer to its Key Investor Information Document (KIID)/PRIIP KID.

The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.

DISCLAIMER

This is a marketing communication. Before making an investment, you should read the relevant Prospectus and the Key Investor Information Document (KIID), which provide full product details including investment charges and risks. These documents can be obtained, free of charge, from www.liontrust.co.uk or direct from Liontrust. Always research your own investments. If you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.

This should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Examples of stocks are provided for general information only to demonstrate our investment philosophy. The investment being promoted is for units in a fund, not directly in the underlying assets. It contains information and analysis that is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. It should not be copied, forwarded, reproduced, divulged or otherwise distributed in any form whether by way of fax, email, oral or otherwise, in whole or in part without the express and prior written consent of Liontrust.