Rathbones' fund managers reveal their 2026 outlooks

Rathbones Asset Management’s fund managers head into 2026 cautiously upbeat: easing inflation 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 AI winners as markets broaden out, and take advantage of attractive valuations.

David Coombs and Will McIntosh-Whyte, fund managers, Rathbones multi-asset portfolios

We enter 2026 broadly optimistic, due to falling inflation and interest rates in the US and UK. 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. 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. The upside would be more deflationary forces.

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. 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 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.

It’s going to be another bumpy ride. It’s important to have liquidity aplenty to take advantage of the opportunities as they arise.

Bryn Jones and Stuart Chilvers, fixed income fund managers

As we look ahead to the next year, we are generally optimistic that 2026 will be a positive year for fixed income. Having now finally moved past the Autumn Budget, the implementation of the move to one fiscal event per year (as well as the extra headroom against the fiscal rules), should mean respite from the recent merry-go-round of elevated uncertainty in the lead-up to 6-monthly fiscal events. In turn, we think this will allow markets to focus on the potential for more rate cuts than is currently priced by the BoE, given the weak employment picture and some of the deflationary policies announced at the Budget.

In terms of things we are keeping a close eye on: increasing issuance from hyperscalers and private credit. On the former, we are generally not concerned at issuer level given the huge capacity these entities have to service debt, but more that the increase in supply from this sector could generally put pressure on credit spreads. On private credit, we have seen a small number of notable defaults towards the back-end of 2025. Whilst they appear idiosyncratic, we will be keeping a close eye for any indication there is a more systemic risk brewing in this space in 2026.

James Thomson, fund manager, Rathbone Global Opportunities fund

The arms race towards AI is insatiable so we expect continued dominance of this trade in the short term. AI is contributing 40% towards 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.

We see danger lurking in the index from this concentration and a more balanced, broader portfolio should drive better returns in 2026, as the market expands its appeal. But timing the transition to a broader market is especially difficult during technology super-cycles.

We expect a volatile year of equity market performance with many sectors running red hot and then ice cold. We still expect the US market to 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. There’s higher R&D spend and double the venture capital spend as a % of GDP. 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.

David Harrison, fund manager, Rathbone Greenbank Global Sustainability fund

For 2026 we will be closely watching AI and its implications for the market. We know significant amounts of capital have been spent globally and the potential is well understood. This has been reflected in share prices and earnings, but the trillion-dollar question is what returns will we see?  Will it be a 2026 issue or 2027?  The market has been pretty much focused on this one theme in 2025.  Understanding and having a view on AI shapes how we build our portfolio.  We will be looking for early indicators of economic return on all this investment.

The second theme to keep an eye on is a broadening out of the market, and the mid-cap story in the US and Europe. The mega-cap names have dominated again but we see significant opportunity in the mid-cap space. We have been adding here and think valuations are too cheap. European infrastructure, US domestic economic plays and high-quality niche players are all available outside the largest companies and we think the mid-cap narrative will gain traction again next year.

Carl Stick and Alan Dobbie, fund managers, Rathbone Income fund

In 2025, UK equities surged ahead, with the FTSE All Share up 21.4% versus the S&P 500’s 11.4%, even as sentiment stayed gloomy, politics chaotic, and capital flowed abroad. For many, UK performance was the prize they missed.

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.

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.

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.

Alexandra Jackson, fund manager, Rathbone UK Opportunities fund

Rate cuts, earnings momentum, and investor rotation: Is the FTSE 250 about to steal the show? We think after several unusual years in the shadows, UK mid-caps could be the comeback story of 2026.

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.

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. 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.

Our view? This is the moment to lean in. UK mid-caps offer compelling value and, picked properly, attractive growth with plenty of quality.

Lisa Lim, fund manager, Rathbone SICAV Asia Equity fund

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 healthcare sector, robotics and automation, and green technology.

Central banks are also in dovish/easing mode which is supportive for growth recovery in consumption and investments.

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.

We think 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, we continue to be positive towards companies with exposure in innovative sectors, domestic consumption and wealth management.

Tim Love, head of global emerging markets

We think emerging markets (EM) are set for a breakout year in 2026, driven by structural shifts and cyclical upside. Perception is not reality in EM equity. Domestic demand growth, technological change (including leap-frogging legacy I.T. Systems), coupled with well patented AI innovations, and strong onshoring trends (EMEE/Mexico), position EM for strong top line and bottom-line relative outperformance versus developed markets.

Key areas of excitement include robust non-correlated domestic demand growth in India and EMEE, expanding EM technological prowess (Semis, AI, EV, AV & humanoid technologies), 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 EM 2026 GDP (including India’s +8%) and EM earnings per share (EPS) outlook.

Catalysts for this shift include EM 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%.

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