2026 Asset Class Analysis: Where We See Value Across Markets

The headline for 2025 is straightforward: it was a strong year for investors, with the fourth quarter putting the finishing touches on solid gains. Bonds regained their role as diversifiers, and credit and emerging‑market debt enjoyed a renaissance. 

For our full analysis, download the complete Global Asset Class Convictions report.

Since 2009, US stocks had outperformed the rest of the global stock markets in 12 out of 16 years, as measured by the Morningstar US Markets Index versus the Morningstar Global Markets ex-US Index. But 2025 flipped that script:

• Non‑US stocks outperformed the US by nearly 15 percentage points, a first in more than ten years. 
• Developed international stocks climbed more than 5% in the fourth quarter, while emerging markets rose roughly 4%. 
• Bonds delivered a solid year, with three of the four major fixed-income categories finishing the quarter in positive territory. 

The theme? A healthier global pulse—and more complexity. Investors now have a wider opportunity set but also a more nuanced landscape to navigate. 

On the surface, the US market remains healthy. But our asset class analysis reveals a deeper valuation story:

• Mega caps (especially AI-linked names) continue to skew index valuations upwards.
• Small caps remain far more attractive, trading at a 15% discount to fair value. 
• Growth and value both look appealing after significant fair value updates

As we enter 2026, we anticipate further volatility. AI stocks require even stronger growth to support lofty valuations. A new chair will take the reins at the Fed. Trade negotiations are resuming. At the same time, slowing economic growth, the upcoming midterm elections, and geopolitical risk will all give investors pause for thought on whether US equities’ strong run has further to go.

We saw two ratings change during the quarter, as the Consumer Defensive and Utilities sectors both increased from Moderately Unattractive to a Neutral view. 

We view the Energy, Healthcare, Basic Materials, Healthcare and Utilities sectors as the most attractive from a relative perspective, with all having a conviction score of Neutral. We view the alcoholic beverage and consumer packaged goods industries as particularly attractive, at 28% and 16% discounts to our fair value estimates, respectively.

International equities are gaining traction again, but not for uniform reasons. Each region is being shaped by its own mix of policy moves, valuation resets, and shifting investor sentiment.

• Australia: Moderation after a late year stumble, with valuations still somewhat stretched.
• China: A strong year—up 36%—powered by stimulus, AI optimism, and tariff relief. But skepticism keeps certain consumer areas deeply discounted. 
• Europe ex-UK: Improving macro conditions, rising GDP expectations, and balanced valuations offer selective appeal.
• UK: Inflation remains high relative to the rest of Europe. Interest rates are still operating at elevated levels, which gives the bank significant room to cut over the coming months.
• Japan: A new prime minister, policy shifts, and AI tailwinds fueled a late-year surge; the backdrop remains optimistic but complicated. 

Our outlook for developed market government bonds remains broadly neutral and we expect the performance of government bonds in the near term to be dominated by their income component. Among them, the long maturity Japanese Government bonds have become moderately attractive as historically high yields reflect significant inflation and supply risk premia.

Across Treasury Inflation-Protected Securities, agency mortgage-backed securities, and munis, the key theme is normalization. Forward-looking inflation expectations have cooled, mortgage rates have declined, and muni markets continue to enjoy strong demand. Tax equivalent yields look quite attractive relative to other fixed income asset classes. Relative to nominal Treasuries, the short and long-end of the curve look attractive at current valuations.

Credit markets surged in 2025, helped by improving global conditions and strong investor demand. But the dominant theme now is compressed spreads, which leave less margin for error going forward.

Because EMs tightened earlier and more aggressively after covid, local-currency debt entered the easing phase with high nominal and real yields, providing a strong carry buffer and enabling local currency rates to rally ahead of developed market peers. But after such a strong run, valuations aren’t as forgiving today. Advisors could frame this to clients as a strong asset class with a less generous starting point. 

• Diversification finally paid off.
• Selectivity matters more than ever—dispersion is widening.
• Income is back, but quality is essential.
• Beware of compressed risk premia. Credit and emerging markets debt have performed strongly, but offer less cushion today.

The full report breaks down our conviction scores, valuation insights, and multi‑asset perspectives in even greater depth.