Schroders’ Crystal Ball 2026

As we step into 2026, financial advisers are preparing clients for another year defined by complexity. Debt, artificial intelligence, geopolitics and central bank independence shaped the investment conversation this year, and according to experts at Schroders’ recent Crystal Ball 2026 briefing, the variables may shift but the uncertainty isn’t going anywhere.

The session brought together two key voices: Johanna Kyrklund, Group Chief Investment Officer, and Nils Rode, Chief Investment Officer of Schroders Capital to unpack the global landscape and identify where advisers should focus for 2026.

A new political and economic reality

Kyrklund said that while market sentiment has been surprisingly resilient, especially in the United States, the drivers behind that strength point to a deeper political and economic shift, and not just the impact of a US election cycle.

She described the last decade as a turning point away from globalisation and tight fiscal policy – which were hallmarks of the 1990s and 2000s – towards an era defined by anti-globalisation, looser budgets and higher inflationary pressures. “Nominal growth has been phenomenal in the US, and nominal growth supports corporate earnings,” she noted. This is the backdrop against which 2026 must be viewed.

Populist policies may be supporting growth for now, but advisers should remain mindful of their ultimate constraint: the bond market’s tolerance. While debt levels continue to climb, current inflation dynamics are keeping yields under control. A more dovish Federal Reserve is helping too, though Kyrklund warned that its stance may be too dovish in the long term.

Bubbles, froth and the limits of valuation

A major concern for investors heading into 2026 is valuation risk. Kyrklund pointed to widening signs of exuberance reminiscent of the late 1990s, though not yet at extremes.

The US equity-bond yield gap sits firmly in ‘expensive, but not bubble’ territory. Meanwhile, the outperformance of non-revenue tech companies and the rise of leveraged equity ETFs signal froth in certain parts of the market.

The takeaway? Selectivity matters more than ever. Kyrklund emphasised that while bottom-up opportunities remain, thanks to strong free cashflow in key tech names, passive exposure to mega-cap dominance is risky this late in the cycle. Active management and disciplined position sizing will be essential.

Rethinking diversification in an inflationary era

One of the most meaningful structural shifts is the changing role of fixed income. In a de-globalised, more inflation-prone world, bonds no longer reliably deliver the equity diversification investors enjoyed from 2008 to 2020. The return to a positive stock-bond correlation means that advisers should once again treat fixed income primarily as a yield generator, not a hedge.

Instead, Kyrklund recommended looking to:

• Gold and select commodities
• Emerging markets, where more orthodox fiscal policies and attractive real yields create opportunity
• Geographic diversification, as markets such as China and European financials show renewed strength
• Fixed income alternatives such as catastrophe bonds, which offer uncorrelated yield.

Another key concern is the weakening diversifying power of the US dollar. Historically, the dollar has risen when equities fall, but this year both declined together. Advisers planning global allocations should keep a close eye on Fed credibility and future inflation cycles.

Preparing for a ‘resilient first’ era

Switching to the private markets outlook, Rode emphasised the need for resilience rather than momentum-driven investing. With holding periods often extending well beyond five years, private market investors must focus on themes that endure through cyclical shocks, not just those that look attractive in a single calendar year.

Rode highlighted several important dynamics:

1. A four-year slowdown and a bottom in sight

Private markets have been cooling since 2021, with declines in fundraising, deal flow, exits and valuations. While painful for existing allocations, this environment is creating more attractive vintage years for 2024–2026. Lower competition and healthier valuations, especially in small and mid-cap buyouts, present long-term opportunities.

2. Small and mid-cap buyouts: Quiet outperformers

Contrary to assumptions that smaller companies carry higher risk, data across 25 years shows these buyouts consistently outperform large-cap strategies during crisis periods. Their lower leverage and predominantly local revenue bases shield them from global trade tensions and geopolitical volatility.

3. Continuation funds are here to stay

Continuation vehicles, where an asset remains with the same private equity sponsor for an extended period, are growing structurally, not just cyclically. They offer lower fees, fewer surprises, and faster liquidity, which make them a compelling tool for advisers seeking stability in private equity exposure.

4. Diversified private debt remains attractive

Private debt has weathered the slowdown better than any other private market segment, thanks to floating-rate structures. Rode highlighted:

• Insurance-linked securities (cat bonds) for uncorrelated returns
• Real estate and infrastructure debt, supported by strong collateral and defensive characteristics
• Opportunistic income strategies able to move across asset classes.

5. Real estate and renewables: A reset, then recovery

Real estate has seen the steepest correction, especially office assets in the US and UK, but Rode believes a floor is forming. Higher construction costs and rental inflation are improving fundamentals for new deployments. Renewable infrastructure, especially in Europe and Asia, remains supported by strong economic and political tailwinds.

What’s under the radar for 2026?

Asked where opportunities may be overlooked today, both CIOs pointed to areas beyond the dominant US tech narrative: International equities such as European banks, China’s growing tech ecosystem, and value styles outside the US.

Small and mid-market private equity

Early-stage innovation globally, with India standing out as the least-correlated major market. Rode underscored a subtle but crucial trend in private markets: while quarterly data suggested an uptick in investment activity, the reality for most of the market painted a different picture. This apparent increase was largely skewed by a handful of very large transactions, masking a broader slowdown affecting most of the private equity, venture capital and innovation deals. 

Rode also addressed concerns around AI-related investments, particularly in sectors like data centres and energy. He noted that while exposure exists, it is selective and spread across value chains rather than concentrated. The bulk of these investments are early-stage companies with significant growth potential, alleviating fears that a late-cycle correction in AI could ripple broadly across private markets. According to Rode, these strategic investments are grounded in fundamental growth rather than speculative momentum, providing resilience in an otherwise high-volatility environment.

The situation in Europe

When discussing opportunities in European equities, Kyrklund highlighted European banks and mid-cap value stocks as areas of potential outperformance, contrasting the US where mega-cap technology dominates. Rode complemented this perspective, pointing to healthcare, particularly biotech, as a contrarian opportunity, noting that the sector had cooled after peaking in 2021. He stressed that private market investors should consider these underappreciated segments for resilient, long-term growth, rather than chasing the headline-grabbing sectors.

Absolute return strategies and hedge funds also drew attention. Kyrklund observed that with yields in traditional assets declining and gold becoming more correlated with equities, liquid alternatives and absolute return vehicles now present a compelling avenue for diversification. Investors should focus on liquid, transparent exposures to manage risk effectively while capturing returns from less conventional strategies.

Energy transition and infrastructure investments, particularly in Europe and Asia, continue to offer strong entry points despite fundraising slowdowns. Long-term demand, political support, and attractive valuations make these investments appealing for patient capital. Similarly, semi-liquid structures and continuation funds are expanding access to private markets for a broader investor base, allowing individuals to participate in high-quality, resilient assets while accommodating liquidity needs.

What financial advisers should keep in mind

The outlook for 2026 is one of paradox: a benign macroeconomic backdrop paired with late-cycle valuations and rising geopolitical risk. The consensus from Schroders’ leadership is clear: Stay invested, but be selective. Manage exposure to mega-cap tech actively. Prioritise resilience, diversification and real sources of yield. Look beyond the US because opportunity is broader than the headlines suggests.