If we were writing a half-year school report for 2026, we’d suggest it has performed reasonably well but needs more consistency to fulfil its potential.
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A-grade: What has achieved top marks?
Global equities have been the teacher’s pet. Despite some wobbles due to President Trump’s war with Iran, the asset class has enjoyed a decent six months. Most international stock markets are trading higher today than they were in early January, but Japan has been the standout performer. The Nikkei 225 has hit historic highs due to the artificial intelligence boom, strong semiconductor demand, corporate governance reforms, international investment, and the end of deflation.
Alison Henry, investment specialist in Japanese equities at Baillie Gifford, recently told us that the country’s drivers of return were changing. “It’s been a long time, but we’re now seeing prices increase and nominal wage growth at an all-time high. This gives companies the confidence to raise wages or prices.” A good way to explore this theme is via the Baillie Gifford Japanese fund, which targets above-average long-term performance in Japanese equities.
Sticking with AI, the boom in this sector is behind the upgrade of forecasts for the S&P 500, according to Ben Snider, chief US equity strategist at Goldman Sachs. “The consensus of analyst estimates is for the largest hyperscale tech companies to spend $754 billion on capital expenditures this year — an 83% increase from 2025 — and $905 billion in 2027,” he wrote.
The AXA Framlington American Growth fund has benefitted from its exposure to a string of leading tech names, including Nvidia, Apple and Alphabet*. Its manager, David Shaw, looks for qualities in potential holdings such as innovation, unique brands and intellectual property.
For broader international equity exposure, there’s the Pinnacle Life Cycle Global Equity Select fund, co-managed by Peter Rutter, Will Kenney and James Clarke. It seeks to exploit market inefficiencies and targets an income at least 20% higher than its global equity benchmark, the MSCI World Net Total Return index.
Pass mark
Global fixed income markets have scraped a pass. While generally acceptable, the start of the year has been challenging, according to a JPMorgan report. “Fixed income experienced sharp volatility, reflecting uncertainty over the growth and inflation impact of the Middle East conflict,” it stated.
In the UK, the outcome of regional elections and a weakening Labour Party “increased speculation of political change and fuelled uncertainty” around fiscal policy. However, there were some positives. “Gilts outperformed the global government bond market as UK inflation came in lower than expected and a deteriorating labour market drove yields lower at the end of the month,” it added.
Ben Edwards, lead manager of the BlackRock Corporate Bond fund, has a track record of consistently exploiting inefficiencies in the fixed income market. More broadly, credit spreads have been an issue for managers such as Dickie Hodges, who runs the Nomura Global Dynamic Bond fund. He’s bought credit default swaps for protection. “We had substantial hedging in place going into the conflict,” he said recently. “It has done its job in reducing volatility.”
European equities have done reasonably well in 2026, with the STOXX Europe 600 benchmark up over 8% year-to-date**. The BlackRock Continental European Income fund, co-managed by Brian Hall and Stuart Brown, is one of our preferred ways to access this market. They identify undervalued European companies that offer reliable, sustainable dividends, along with the potential for dividend growth and lower risk.
Could do better
Indian equities have been pretty subdued so far. Geopolitical shocks, US tariffs and record foreign investor outflows have all played a part. However, the positive aspects of India remain, and there’s an argument that this year’s cooling could actually provide an attractive entry point for investors.
Aman Batra, lead manager of the Goldman Sachs India Equity Portfolio, remains optimistic, noting recently that India had been expecting an acceleration in corporate earnings growth before the Middle East crisis hit. Earnings are still expected to grow, albeit at a slower rate of 12-13% in the 2027 financial year, down from an earlier expectation of 16%***. Batra’s fund has about 60% exposure to large-cap names, including prominent financial institutions such as ICICI Bank and HDFC Bank*.
