Investment Directions for Institutions

FOR INSTITUTIONAL, PROFESSIONAL, WHOLESALE, ACCREDITED, AND QUALIFIED INVESTORS/CLIENTS, AND PROFESSIONAL INTERMEDIARIES ONLY.

In an uncertain world shaped by mega forces - such as AI and geopolitical fragmentation - it’s become far more challenging to anchor strategic asset allocation decisions around a single, long-term scenario.

This is why, we think it’s crucial for institutional investors to REVISIT long-held assumptions and practices - and REPOSITION portfolios for a future of more uncertain returns and higher volatility.

In our 2026 Investment Directions for Institutions, we outline a three-stage approach to evolving portfolios:

Firstly, we think it’s important to assess how the strategic asset allocation may perform across a range of scenarios - and IDENTIFY which assets are most VULNERABLE to scenario shifts and which assets could PROVIDE RESILIENCE.

We find that equity allocations – particularly to the US and, BY extension, global equity exposures – exhibit the WIDEST dispersion of outcomes.

This underscores the need for a TOTAL PORTFOLIO APPROACH - through several asset allocation and portfolio implementation enhancements - to help boost a portfolio's expected returns and stability.

Secondly, we outline potential enhancements to ASSET ALLOCATION - for example, through PRIVATE MARKETS for higher alpha potential and access to opportunities aligned with mega forces, and through PUBLIC MARKET EXPOSURES such as macro hedge funds, euro high yield credit and euro AAA CLOs. These asset allocation shifts may help to enhance risk-adjusted returns across a range of scenarios.

Thirdly, we explore the benefits of PORTFOLIO IMPLEMENTATION enhancements. For example, our analysis shows that shifting part of the portfolio core from INDEX to LOW-COST, LOW-TRACKING ERROR SYSTEMATIC ALPHA STRATEGIES can increase expected returns without a significant deviation from the benchmark.

We also find that optimising instrument selection – for example, replacing FUTURES with ETFs in US equity exposures – may improve cost efficiency, while partially hedging US Dollar exposure can provide protection against potential further dollar downside and still preserve the benefits of the dollar's safe-haven characteristics.

Finally, we put theory into practice, outlining case studies for illustrative portfolios.

For more on these themes and ideas around how to evolve portfolios, see our new Investment Directions for Institutions publication.

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