Fund managers highlight biggest reasons to be cheerful and fearful

Over the past month, we interviewed a range of fund managers investing in different parts of the global stock market, asking them to reflect on 2025 and look ahead at prospects for 2026.

The videos form part of our Insider Interview series, where we ask fund managers to run through portfolio activity, offer their outlook, and answer questions related to performance. The full video series can be found here on our YouTube channel.

Each fund manager was asked to share their top reason to be bullish for the year ahead, and to name their biggest fear that could make 2026 troublesome to navigate.

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Below, we run through what each professional investor said.

Reasons to be cheerful

A headwind for markets that led to sharp stock market falls earlier this year was uncertainty over the shape and form of US tariffs.

At the worst point – from 19 February (an all-time high at the time) to 8 April – the S&P 500 index lost 20% of its value, while, at its worst point, the technology Nasdaq index lost nearly a quarter of its value from its pre-Christmas peak. 

The US stock market made a strong recovery from 8 April onwards when US President Donald Trump eased market jitters by implementing a 90-day pause on tariffs, giving markets more time to study the details and assess the implications.

From 9 April to 22 December, the S&P 500 index and MSCI World index are both up just over 26% in sterling terms.

Ian Rees, manager of wealth preservation strategy Ruffer Investment Company (LSE:RICA), suggested that US tariffs could be less of a risk for stock markets in 2026, which was one of his reasons for optimism.

Rees said: “It has been a calendar year of great uncertainty: tariffs, geopolitical tensions, political tensions. Where exactly are we going? Well, if you think about going into 2026, tariffs can be in the rear-view mirror. So, those worries, whether just in terms of uncertainty or the economic impact, maybe aren’t going to be as bad as people thought at the time.”

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City of London (LSE:CTY) manager Job Curtis and Gabrielle Boyle, who oversees Trojan Global Equity, both pointed to valuations being cheaper than historical standards.

Curtis said: “I think the valuation of the UK stock market is very supportive. It is still the cheapest rated on our calculations of the major markets, and it’s somewhat below its long-term average, unlike most of the other markets.

“You’re being paid while you wait, you’ve got a dividend yield of over 3%, around 3.3%, a share buyback going on at around 2.2%. So, you’ve got what we call a total distribution yield of about 5.5%, which I think is a very strong starting point. So, you’re kind of paid to hang on in the UK stock market is one way of describing it.”

Boyle described the valuations of the global shares she owns – around 30 high-quality growth shares – as “really compelling” compared to history and the overall market.

She said the fund has had a difficult time performance-wise, but what gives her a lot of comfort is that she’s “able to buy these wonderful businesses at quite attractive valuations”.

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Rebecca Maclean, manager of Dunedin Income Growth (LSE:DIG), addressed the investment trust’s underperformance over one, three and five years.

Maclean said the concentration of returns in a handful of sectors hurt its performance relative to the FTSE All-Share index. The trust, which predominately invests in UK shares, but also has European names (around 20%), is a concentrated portfolio of best ideas, focusing on high-quality companies.

However, going forwards, Maclean is optimistic that the companies she owns will no longer be overlooked.

She said: “The sectors that we’ve not owned have performed well, and that accounts for some of the underperformance. From where we stand today, I would be looking at those assets that have been left behind and, for me, the quality aspects of the market, quality companies, have been under-appreciated and haven’t enjoyed that rally.”

For Sean Peche, manager of Ranmore Global Equity, his reason to be cheerful is that “active management could see a resurgence”.

Ranmore Global Equity has significantly outperformed peers and the wider global stock market over multiple time periods. Over five years, it is up 163.3% versus 79.2% for the MSCI World Index.

Peche’s view is based on his reason to be fearful, which is that the US stock market is overvalued and could fall heavily, exacerbated by how concentrated the S&P 500 index is. Seven companies, the so-called Magnificent Seven stocks, account for 35% of the entire market capitalisation compared to around 12% a decade ago.

Reasons to be fearful  

Peche sounded the alarm over a potential “crisis brewing in the States”, adding, “I think there’s a crisis brewing in the large technology companies.” His concerns stem from how the world’s biggest technology companies are financing their artificial intelligence (AI) growth and expansions.

Peche describes the US stock market as “priced to perfection”, while adding that the Magnificent Seven is a crowded trade.

“The whole world is invested in the Magnificent Seven. Look at most factsheets, it’s like Microsoft Corp (NASDAQ:MSFT), Amazon.com Inc (NASDAQ:AMZN), etc. So, you’ve got this priced for perfection, and most people are there, and yet there’s stuff that’s not going well. I worry about that.”

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Ruffer’s Rees is also concerned about “more leverage” being used by businesses to fund AI development.

He explained: “In recent weeks and months, you’ve started to see more leverage come into this investment to fund that next level of huge growth and investment. It’s being increasingly debt financed. There is more debt in the mix than before.

“I don’t want to say it’s like 1999, 2000, but the shades of circular reference, the sort of vendor financing, you know, you’ll buy from me and I’ll buy a stake in you, that sort of interconnected loop.

“I wouldn’t say necessarily that it’s going to end tomorrow or in six months, but just looking from afar, there’s a lot of hope and expectation here. At the margin, things aren’t as good as they were in terms of the fundamentals, in terms of how it’s being structured, and at some point, these huge cash flows will need to begin to generate revenue.

“And I’m not saying it won’t happen. But if I was looking on balance, that is something that would leave me cautious given the size of the AI complex, if you will, in the US and global equity index.”

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Both City of London’s Curtis and Troy’s Boyle point to geopolitical tensions continuing to be a headwind for stock markets in 2026.

Curtis said: “In terms of my worries, I guess the geopolitical. You can’t worry about it every minute of the day, but we’ve still got a war going on in Ukraine and, obviously, we’ve still got these big tensions with China, and issues in the Middle East haven’t gone away either, really.

“So, I think the geopolitical could rear its ugly head at some point. I’m not predicting that it will, but it’s something you can’t ignore.”

Boyle acknowledges that with financial markets, there’s always things to be fearful about.

“We operate in uncertain times, there’s significant geopolitical uncertainty, inflation’s sticky, there are high levels of government debt, and economic uncertainty. It’s a time of dramatic technological change, that all creates disruption and uncertainty, and we don’t have a crystal ball. So, we always invest with a view that we don’t have all the answers,” she said.

Finally, in terms of specific risks for the UK market, Maclean highlighted the highly concentrated nature of UK dividends as a key concern. She said: “If you look under the hood, the dividends paid by the UK market are in a handful of companies and are highly concentrated.

“So, 40% of the dividends paid last year were in banking, mining and energy, and these are typically cyclical sectors, which are dependent on external factors like interest rates or commodity prices.”

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