Fund managers are still buying risk assets going into the back half of 2026, but they are picking their spots. Money is moving into UK equities trading at half the valuation of global markets, into US companies outside the handful of technology names that have driven returns, and into the full remit of firms feeding into the AI build-out rather than just the biggest winners.
At the same time, long-dated bonds, crowded AI positions and a market that has stopped reacting to geopolitical risk are the areas drawing the most caution.
Last week, Trustnet covered the macro backdrop shaping the second half of 2026: sticky inflation, tariff uncertainty and a Middle East conflict with no resolution in sight.
Below, we asked experts what they think the risks and opportunities are for investors from here to the end of the year.
Risks
Complacency around geopolitics could cause volatility
Investors should expect heightened volatility in the rest of the year as markets have barely reacted to a run of headline risk that would once have moved prices sharply.
John Sidawi, senior portfolio manager for fixed income at Federated Hermes, called it “a remarkable degree of calm”, visible across volatility indices, total returns and credit spreads, despite the unresolved conflict in the Middle East and an unpredictable US policy backdrop.
Constant shifts in geopolitical narratives and policy messaging have made conviction hard to sustain, pushing investors toward benchmark-hugging positions rather than repeated bets on changing headlines.
“This equilibrium is unlikely to be permanent,” Sidawi said, adding that escalation, or a clear path to resolution, could force investors off the sidelines and trigger more volatility than current pricing reflects.
Concentration risk in AI-led markets
Some managers are wary of how narrow market leadership has become.
Caroline Shaw and Chris Forgan, portfolio managers of the Fidelity WealthBuilder MPS (Model Portfolio Service), remain “constructive” on opportunities into the end of the year but increasingly believe “the best prospects lie beyond the areas that have dominated market returns so far”.
“We are therefore looking to broaden our sources of return while retaining exposure to the structural growth story,” they said.
This doesn’t mean selling out of AI, however.
Michael Strobaek, global chief investment officer at Lombard Odier and Nannette Hechler-Fayd'herbe, head of investment strategy, sustainability and research at the firm, said earnings still support the pricing: large-cap US technology companies delivered close to 70% earnings growth in the second quarter and cloud revenue growth is accelerating.
This they read as evidence for genuine AI monetisation, while the risk would be in relying on too small a group of winners to keep delivering it.
Long-duration bonds remain out of favour
Two different managers reached the same conclusion on long-duration bonds. Chris Iggo, chief investment officer at AXA IM Core, BNP Paribas Asset Management preferred shorter duration assets and returns driven by credit spread such as high-yield debt over the long end of the curve.
The 30-year US treasury's 5.24% yield, he noted, “looks favourable if the Fed can return to meeting its inflation target”.
Lombard Odier moved global government bonds only to neutral in June and is staying “cautious on long-dated bonds”, with a preference for five- to seven-year maturities in US treasuries and other developed markets.
A shrinking UK investment universe
For UK equity managers, the risk is more about supply.
Ian Lance and Nick Purves, portfolio managers of Temple Bar Investment Trust, pointed to a wave of takeover activity this year, including bids for Beazley, EasyJet, Segro, Schroders and Tate & Lyle combined with a “dearth of IPOs” that is steadily reducing the size of the investable UK market.
They still consider the opportunity set “large enough” under the trust's rules, which allow up to 30% of assets in overseas-listed businesses, though the board continues to monitor the trend.
In yesterday’s half-year update for the trust, the duo also flagged a domestic policy risk: the likelihood of rising UK taxes following the recent change in prime minister, one reason they believe equity valuations already look cautious outside AI-related stocks.
Opportunities
UK value trading at a steep discount
The corporate activity narrowing the UK universe also doubles as evidence of how cheap parts of the market remain. Temple Bar's portfolio, Lance and Purves said, is valued at “around 11x earnings, a meaningful discount to the wider UK market, and around half the valuation accorded to the wider global equity indices.”
US mid-caps as a broadening play
Shaw and Forgan saw a similar broadening opportunity in the US, away from the largest technology names. Mid-caps, they said, “offer exposure to a very different mix of sectors, including industrials, financials and materials,” with valuations that remain attractive “following several years” of investor attention overwhelmingly favouring the biggest companies.
With US earnings growth beginning to spread beyond technology, they believe mid-caps are “well placed to benefit if this broadening continues” through the rest of the year.
The wider AI value chain
Rather than avoid AI exposure, Lombard Odier is looking to spread it more widely. The firm favours companies across “semiconductor designers, AI infrastructure providers, foundries, networking vendors and data centre operators”, arguing that value is accruing across the entire chain, not just at the hyperscalers.
Within tech, it has a specific preference for emerging market names, whose valuations are “much lower than their developed market peers” despite a similarly strong earnings outlook, even allowing for the recent volatility in Korean equities.
Sector broadening into financials, materials, utilities and healthcare
That emerging and developed market overweight extends into sector calls too. Strobaek and Hechler-Fayd'herbe favoured financials, materials, utilities and healthcare, citing earnings momentum and structural trends including expanding capital expenditure, electrification and rising longevity as the broader capex cycle feeds through the economy.
Europe's relative outperformance
Europe looks interesting on both fundamentals and sentiment, according to AXA’s Iggo. Equities in the old continent have beat US returns this year as investors recalibrated valuations for the largest American technology companies against their capital spending.
He credited an “autonomy theme” supporting defence, technology, energy and finance, alongside lower investor concern about inflation and fiscal risk than in the US.
He noted: “Spain won the World Cup and, along with Italy, to date has the best performing European equity market in 2026.”