April 09, 2026
Markets overview
The first quarter of 2026 began on a strong footing, extending the gains of the previous year. Conditions shifted in March as escalating tensions in the Middle East pushed oil prices higher, reintroducing inflation concerns and prompting markets to reassess the timing of interest rate cuts. This led to a pullback across both equities and bonds, though declines were contained and most equity markets still finished the quarter higher.
Importantly, this reflects increased uncertainty around inflation and interest rates, and not a deterioration in the underlying economic backdrop—at least for now. The economy entered March from a position of strength, and corporate earnings expectations remain solid. The ultimate impact will depend on the duration of the conflict and whether higher oil prices persist long enough to meaningfully slow economic activity and pressure corporate results.
Within equities, the drivers of returns are evolving. While Artificial Intelligence (AI) and technology continue to support investment and the potential for earnings growth, the focus is shifting toward how that investment ultimately translates into long-term returns and which companies are best positioned to benefit. More broadly, market performance is becoming less concentrated, with a wider range of sectors and regions contributing to returns.
In fixed income, rising yields weighed on traditional bond returns during the quarter. Higher income-oriented strategies were more resilient, supported by greater starting yields and stable fundamentals.
Portfolio strategy and positioning
Our approach remains grounded in a simple principle: stay positioned for a range of outcomes, not a single forecast. The current environment—where inflation is less predictable and policy is less certain—reinforces the importance of maintaining a measured level of risk and being balanced in terms of where we allocate capital.
Within equities, we continue to see AI as a powerful long-term driver of earnings growth, but our positioning has evolved. As investment requirements have increased and return expectations have come under greater scrutiny, we have become more selective. We have reduced exposure to areas such as software and professional services where disruption risk is elevated, while maintaining exposure to companies with clearer paths to monetization.
At the same time, we are leaning into the broadening of market leadership, with increased exposure to sectors tied to more tangible drivers of return, including energy and industrials. We are also emphasizing companies with more resilient business models that can better withstand a more challenging economic environment should current geopolitical risks persist.
Within fixed income, our focus remains on generating income while managing interest rate risk. We continue to favour diversified credit over traditional bonds, reflecting both the higher starting yield environment and the risk that inflation remains above target. Areas such as mortgages have been more resilient in the face of rising yields, contributing to more stable returns.
At the total portfolio level, we continue to enhance how we allocate capital. This includes incorporating more systematic, rules-based signals and strategies to complement fundamental insights; improving how we adjust exposures as market conditions evolve; and expanding our opportunity set across regions and asset classes. These enhancements are designed to improve consistency of returns while maintaining a disciplined approach to risk management. Our focus remains on building portfolios that can navigate uncertainty while positioning clients to benefit from opportunities as they emerge.