If I were a Chief Investment Officer, what would my focus be for 2026?
This content is AI generated, click here to find out more about Transpose™.
For terms of use click here.
The turn of the year invites a flurry of articles containing predictions, forecasts and “things to look out for”. Yet seasoned investors know that forecasting is, at best, an entertaining parlour game and, at worst, a distraction from sensible long-term allocation decisions.
Still, it is impossible to ignore the background noise: record-high equity indices and narrow credit spreads are accompanied with ominous headlines about weak economies, asset bubbles and geopolitical fracture. Against that backdrop, here is how we would approach 2026 if we were wearing a Chief Investment Officer’s hat.
Current market backdrop for investors
Expensive risk assets
Despite the occasional wobble, most developed-market equities finished 2025 at or near all-time highs. Price-to-earnings multiples have stretched, especially in the AI-themed growth stocks, making even modest earnings disappointments hazardous.
Low credit spreads
Investment-grade and even high-yield bonds are trading at some of the tightest spreads since 2007. Investors have chased yield in private credit too, fuelling fears of covenant-lite financing and overexuberant lending practices.
Persistent macro headwinds
Sluggish real world growth, rolling energy shocks and an unpredictable geopolitical landscape, with its accompanying volatility in sovereign bonds and currencies, leave little margin for error. The phrase “highest level since 2009” appears with disquieting frequency.
Fear of bubbles
From AI equities that price perfection, to private credit funds promising equity-like returns with bond-like risk, investors are reliving uncomfortable echoes of both the dotcom era and the pre-Global Financial Crisis “search for yield”.
Evil demon thought experiment
Against this backdrop some of my colleagues and us have conducted a thought experiment. And like all the best thought experiments it involves an evil demon. Imagine an evil demon had slipped into your systems on 31 December 2025 and liquidated every position in your portfolio, leaving you with nothing but the equivalent amount of cash for the next morning. You awake on 1 January 2026 to a blank slate.
Faced with the prospect of rebuilding, would you really go out and repurchase the same assets you previously held at today’s prices?
The point of this is to strip away the anchoring bias that can often influence investors. When the default is not to own anything, the hurdle rate for buying back feels drastically higher.
In our case, it forces an uncomfortable admission: a significant chunk of public-risk assets currently looks rich, and the risk-reward trade off in many private markets feels overheated. That does not mean everything should be sold or that Armageddon is inevitable, but it does argue for a defensive tilt until valuations or fundamentals improve.
CIO priorities for 2026
With that in mind, what would we be thinking about as a CIO in 2026? Here are our priorities:
Protecting the core: tail-risk hedges
While insurance always feels expensive before the accident, now is not the time to let cover lapse. Consider how your portfolio would stand up to significant equity market draw-downs, a liquidity squeeze and swinging yields. Diversification is always desirable, but putting more specific hedges in place may also be worth the cost, whether that be derivative structures or alternative tail-risk hedging structures.
Shortening duration
Clearly selling everything is uncomfortable, and whilst credit spreads are low they are not nothing. However, the compensation for locking your money away for ten years, doesn’t compensate you for the risk. Moving into credit with lower maturities still gives you some extra yield, but comes with added flexibility if markets re-price. Be wary chasing yield in late-cycle markets. We wouldn’t be searching for extra return in sub-investment grade debt right now.
Prioritise liquidity: keep your powder dry
Cash yields may be falling, and holding too much of it erodes the value of your portfolio when compared to inflation, yet it carries immense optionality when volatility spikes. Flexing strategic allocations to high-quality short-dated government bonds upwards gives you some ready ammunition if risk assets cheapen. Paying down any debt against hedging positions may be a better use of proceeds from risk asset sales than anything else right now.
Closing thoughts
The new year should be a time of optimism, but it is no place for complacency. Valuations that imply nothing can go wrong rarely age well.
By focusing on protection, prudent duration, liquidity and opportunistic flexibility, a Chief Investment Officer can enter 2026 prepared for both adversity and the bargains that adversity eventually brings.
As you begin a fresh year, may your portfolios flourish - and may mischievous demons stay firmly outside the firewall this year.
If you would like to discuss any of these focus areas in more depth, please get in touch
Let's talkSubscribe to our thinking
Get relevant insights, leading perspectives and event invitations delivered right to your inbox.
Get started to select your preferences.
