Markets are positioned for growth… but stay diversified

Leonie MacCann, senior multi-asset portfolio manager with Irish Life Investment Managers, says diversification will continue to be the watchword for 2026.

Despite a strong fundamental backdrop for equities, investors will want to hedge their bets, she said on the latest episode of the Soundbites podcast.

“Earnings are accelerating. You’ve got fading policy shocks. Fiscal stimulus, potential for interest rate cuts and the AI theme are all supportive for growth in 2026,” she said. “However, there are risks.”

Her “cautious optimism” stems from weighing the positive factors — including generous fiscal stimulus and accelerating AI-driven productivity improvements — against ongoing geopolitical risks, global trade tensions, and a delicate labour market.

“If you were to see increased layoffs or a collapse in confidence around AI and AI-related investments, then that could have a very negative impact on markets and growth,” she said.

“Maintaining a diversified approach is going to be absolutely key to navigate that,” she said. Allocating to fixed income, alternatives and real assets in addition to equities, will offer “a level of agility so that you can take advantage of opportunities as they arise.”

MacCann said diversification helps deliver a smoother investment journey for the end client.

“That’s important because the worst thing — and the thing you don’t want to see — is investors getting nervous when volatility spikes,” she said. “What happens is they’ll often sell out or move to cash when markets sell off. And then when markets have recovered and volatility is reduced, they’ll re-enter the market. So they’ll have crystallized that whole loss.”

According to MacCann, the first quarter of 2026 looks relatively strong for the U.S., where investors will see a reversal of the negative impact of last year’s government shutdown.

“Overall, you could see growth in and around 2.2% for the U.S. next year,” she said.

The wild card will be inflation. Still higher than the Federal Reserve would like to see, it appears poised to fall with the easing of tariff impacts ease.

“That should be supportive of allowing the Fed to continue lowering rates,” she said.

MacCann said the European Central Bank appears to be done with rate cuts for now, as inflation is in “a much better place and largely under control.”

The Bank of Canada, which was among the more aggressive rate-cutters in developed markets, is likely to stay on hold through 2026.

In fixed income, MacCann favours duration right now for a couple of reasons.

“Firstly, yields are at a much more attractive level than they have been in, say, the decade-plus that you saw post the Great Financial Crisis. So you’re getting rewarded for holding duration,” she said. “And then the second reason we like duration is we like the ballast that that can bring into a portfolio, into a multi-asset portfolio.”

She said if 2026 brings a risk-off event, yields have room to fall.

She also prefers U.S. government bonds over other sovereign bonds.

“There’s more room for the Fed to cut versus the ECB and the Bank of Canada,” she said.

Credit spreads are very tight in the current moment, she said.

“We’re not seeing a lot of opportunities within credit. Where we’re seeing more attractive opportunities are in private credit where you’ve got the potential to see more attractive yields.”

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This article is part of the Soundbites program, sponsored by Canada Life. The article was written without sponsor input.