UK Rathbones Asset Management’s fund managers share their outlook for 2026, being cautiously upbeat, notably on US, Asian and UK equities.

Rathbones Asset Management fund managers are heading into 2026 cautiously upbeat, highlighting a preference for US, Asian and UK equities.

The firm believes that inflation will ease and the prospect of rate cuts are improving the backdrop for growth, equities and bonds, even as politics and geopolitics keep volatility in focus. Across portfolios, the big calls are to stay liquid and diversified, look beyond overcrowded mega-cap artificial intelligence (AI) winners as markets broaden out, and take advantage of attractive valuations, the firm said in a statement.

“We enter 2026 broadly optimistic, due to falling inflation and interest rates in the US and UK,” David Coombs and Will McIntosh-Whyte, fund managers, Rathbones Multi-Asset Portfolios, said. “This should ensure the US economy continues to grow, albeit at below trend, and the UK avoids recession. It will not be plain sailing, however, as we may well see employment levels falling which could create volatility for equities as analysts fret about lower earnings.”

“Europe looks unexciting despite the earlier optimism about Germany,” Coombs and McIntosh-Whyte continued. “We may see an uptick in German GDP, but this does not necessarily read through to the Dax. Overall, we favour US, UK and Asia from an equity standpoint. Finally, AI, I believe the market will start to look for more evidence of a return on the capital being invested, which will test some of the current high ratings enjoyed by the AI Basket.”

“If we see an end to the war in Ukraine, this would be an additional positive as markets turn to the reconstruction theme, however commodities could come under pressure if Russia is allowed back into global markets as part of any deal with the US,” Coombs and McIntosh-Whyte said. “The upside would be more deflationary forces.”

As wealth managers set out their views for the coming year, some appear unsure whether US equity valuations are sustainable, but also aren't yet willing to make a major shift. Several have talked of the need for more diversification. Paris-headquartered ABN AMRO Investment Solutions, the asset management arm of ABN AMRO, is, for example, overweight in US and emerging market equities, notably tech. See here. A number of wealth managers have also come out recently in favour of emerging markets and Asia this year, for instance Ninety One, Aberdeen Investments, Paris-based Amundi, Carmignac and Indosuez, as well as GIB Asset Management and Franklin Templeton. See more here and here.

Fixed income
“Turning to fixed income, credit spreads look tight so returns could be modest, while the outlook for gilts and US Treasuries is unclear. On the one hand, both are generally considered safe havens and should act as diversifiers if growth slows and interest rates fall. The problem, as ever, is the political landscape,” they continued. “US President Trump’s tariffs could be declared illegal, which would increase the budget deficit meaning fewer tariffs, becoming a negative, ironically. In the UK, the credibility of the government and the Office for Budget Responsibility (OBR) is in question and there are significant elections in May which could unseat the Prime Minister. All of which probably caps any significant gains for the gilt market. Having said that, current yields are attractive, in our view, and we have been adding into the year end.”

“As we look ahead to the next year, we are generally optimistic that 2026 will be a positive year for fixed income,” Bryn Jones and Stuart Chilvers, fixed income fund managers at Rathbones Asset Management, added.

Artificial intelligence
James Thomson, fund manager of the Rathbone Global Opportunities Fund, believes that the arms race towards AI is insatiable so he expects continued dominance of this trade in the short term. AI is contributing 40 per cent toward the growth in US GDP. However, the concentration in markets has become eyewatering. “Defensives and cyclicals have traded predominance over past decades yet today, both have shrunk before a tech-trained one-trick pony,” he said.

He expects a volatile year of equity market performance with many sectors running red hot and then ice cold. He thinks the US market will set the tone as the barometer for global investor sentiment. “The US remains the home of innovation, adaptability, repeatable and mission critical growth which is why the US has six trillion-dollar companies and Europe has none. The US outperforms on tax, business freedom, lower government spending, greater employment flexibility and a hunger to innovate,” Thomson said. “Yes it’s an expensive market, but expensive doesn’t always mean overvalued. Quality, resilience and a broad spread of future-proof companies means this market will grow through volatile economic cycles.”

UK equities
“Looking to 2026, we are excited that UK stocks remain attractively valued, inflation and interest rates are easing, and overseas money is returning as questions grow around US valuations and a potential AI bubble. These dynamics could spark renewed interest in UK equities,” Carl Stick and Alan Dobbie, fund managers of Rathbone Income Fund, said.

“Geopolitical uncertainty remains a key concern. Most notably, US political volatility ahead of mid-terms, tense US-China relations, and unresolved flashpoints in Ukraine, Gaza, and Taiwan cast long shadows. UK political hopes have also disappointed,” Stick and Dobbie said.

“Nevertheless, a heady combination of falling interest rates, marginally supportive economic data and improving flows into a cheap market could make 2026 another strong year for UK equities, perhaps even a repeat of 2025’s success.”

“Global equities delivered another impressive year in 2025, and the UK was no exception, with the FTSE 100 delivering much-needed outperformance versus global peers. But after such a strong run, where do we see the next opportunity? For us, the answer is clear: UK mid-caps,” Alexandra Jackson, fund manager at Rathbone UK Opportunities Fund, said.

“Large caps stole the spotlight this year, driven by banks and defence stocks – areas that barely feature in the FTSE 250. Meanwhile, mid-caps lagged, held back by uncertainty around the delayed Budget and their more domestic focus.”

“Now, the picture looks very different,” Jackson continued. “With the budget behind us, rate cuts on the horizon, and pockets of solid earnings growth, the stage is set for mid-caps to shine. Add to that the fact that many investors have been underweight this space, and we see plenty of room for a catch-up trade.”

“This is the moment to lean in. UK mid-caps offer compelling value and, picked properly, attractive growth with plenty of quality,” she added.

“In our view, economic fundamentals remain solid in Asia, driven by structural wealth formation and innovation progress which is broadening out to sectors outside AI and technology, for example, drug discovery in [the] healthcare sector, robotics and automation, and green technology,” Lisa Lim, fund manager, Rathbone SICAV Asia Equity Fund, continued.

“Valuations across the region remain attractive, the recent rally and re-rating has been narrowly confined in AI, Korea and China technology. There are still many parts of the markets which are trading below their historical average, where the market has overlooked," Lim said.

She thinks there are good opportunities for active stock pickers to pick up high-quality and attractively valued companies, and position for a broader recovery across Asia. Within Asia, she is positive towards companies with exposure in innovative sectors, domestic consumption and wealth management. 

Emerging markets
Tim Love, head of global emerging markets at Rathbones Asset Management thinks emerging markets are set for a breakout year in 2026, driven by structural shifts and cyclical upside. Perception is not reality in emerging market equity. Domestic demand growth, technological change, coupled with well patented AI innovations, and strong onshoring trends, position emerging markets for strong top line and bottom-line relative outperformance versus developed markets.

He believes that areas of excitement include robust non-correlated domestic demand growth in India, expanding emerging market technological prowess, and accelerating onshoring in Poland, Romania, and Mexico. With more cyclical upside to go in Korea (shipping, defence, cosmetics) and further MAGA technology supply chain strength in Taiwan, this all further reinforces the superior emerging market 2026 GDP (including India’s +8 per cent) and emerging market earnings per share outlook.

Catalysts for this shift include emerging market equities being under-loved, under-owned, and undervalued, supported by a falling dollar, a more dovish Federal Open Market Committee (FOMC), and projected MSCI EM index EPS growth of over 17 per cent.

“Emerging markets are no longer just a growth story – they’re becoming a high-value innovation hub,” Love said. “With emerging market equity structural reforms and cyclical catalysts aligning, we believe 2026 should mark the start of a transformative relative and absolute period for global investors.”