2026 Investment Strategy

Executive Summary

The 2026 investment landscape is being shaped by a more demanding macro regime in which policy uncertainty, energy volatility, infrastructure constraints, and tighter capital selectivity are feeding directly into asset prices. The dominant investment question is how markets will absorb higher oil prices, firmer inflation expectations, a cautious Federal Reserve, and a financing environment that is becoming more discriminating across both public and private markets.

Within that setting, sector leadership should continue to migrate toward businesses linked to essential infrastructure, domestic capacity, and durable cash flow generation. Artificial intelligence remains a major investment theme, though the investable expression is broadening from software and semiconductors toward the physical systems required to support large-scale compute. Utilities, grid equipment, transmission, backup generation, and energy infrastructure are becoming increasingly central as hyperscale data center demand collides with existing bottlenecks in power supply and grid connectivity.

A second defining feature of 2026 is the growing significance of private credit as a market structure variable rather than a niche alternative allocation. The asset class has become sufficiently large and intertwined with sponsor finance, middle market lending, and institutional portfolio construction that tighter liquidity conditions in private credit now matter for the broader market. Recent redemption requests, withdrawal caps at several major managers, and new fund structures explicitly designed around liquidity terms indicate that capital is becoming more selective. That shift has implications well beyond private vehicles, affecting refinancing conditions, M&A timing, sponsor exits, valuation discipline, and the market’s relative preference for companies that can fund themselves internally.

Taken together, the 2026 environment favours a more selective and more policy-aware portfolio posture. We prefer sectors exposed to power demand, grid investment, defence and security spending, industrial capacity, and business models with clear pricing power and strong balance sheets. We are more measured on broad consumer discretionary exposure and on capital-intensive or valuation-stretched segments that rely on benign financing conditions. The guiding principle for 2026 is straightforward: markets are placing a higher premium on resilience, essential assets, and self-funded growth.

Strategic View

Our 2025 framework was built around soft-landing dynamics, moderating inflation, and secular growth themes such as AI, energy transition, infrastructure, and consumer demand. The 2026 refresh is built around a different set of organizing forces. Policy is carrying greater market influence, energy has re-entered the inflation conversation, and capital is being priced with more discipline across the system. The result is a regime in which the market is rewarding assets and issuers that offer either hard economic utility or high-quality cash flow visibility.

This backdrop supports a strategy centred on three linked pillars: power and infrastructure, pricing power and quality, and capital discipline across credit-sensitive areas of the market. Those pillars fit both the macro tape and the sector-level transmission channels now in motion.

Key Themes for 2026

1. Power demand is becoming a primary investment driver

Artificial intelligence remains a growth engine, though the market is recognizing that compute demand depends on physical power systems. Data center expansion is tightening the linkage between technology investment and regulated utilities, generation capacity, transmission buildout, and grid modernization. The implication for portfolios is that AI should be expressed more broadly than through software and semiconductors alone. The stronger opportunities increasingly include utilities with regulated growth, transmission and electrical equipment suppliers, gas infrastructure, selective nuclear optionality, and companies tied to the physical enablement of compute expansion.

2. Pricing power matters more as inflation sensitivity returns

A more selective consumer stance is warranted, favouring businesses with pricing power, value orientation, and resilient demand characteristics over discretionary segments that are highly exposed to fuel, financing, or confidence shocks. At the macro level, the policy backdrop has become more cautious as policymakers weigh inflation risks associated with recent energy developments. That combination of firmer inflation sensitivity and cautious policy argues for maintaining valuation discipline and emphasizing companies that can defend earnings without relying on multiple expansion or lower funding costs.

3. Private credit is now a transmission channel for broader market tightening

Private credit has grown into a core financing source for sponsor-backed issuers and middle market borrowers. As a result, tighter liquidity conditions in the space have become relevant for the broader market. Recent reporting on redemption requests, withdrawal caps, and new semi-liquid fund structures is important because it signals a more selective capital environment. Even a moderate tightening in private capital availability can raise refinancing costs, widen the performance gap between stronger and weaker borrowers, and alter market leadership across both credit and equities.

The ripple effects can show up in several places. Sponsor-backed companies may face less forgiving refinancing terms. M&A and exit activity can become slower and more price sensitive. Public high-yield and leveraged loans can reprice to reflect tighter marginal financing conditions. Equity investors can place a higher premium on free cash flow generation and balance sheet strength. In that sense, private credit has become one of the clearest bridges between asset allocation behaviour and broader market pricing.

4. Policy and geopolitics are feeding more directly into sectors and earnings

Midterm periods usually raise the market relevance of fiscal negotiation, trade policy, regulation, and national security spending. In 2026, that policy sensitivity is arriving alongside a live energy and inflation channel, which increases its significance. Security spending, domestic infrastructure, and supply chain resilience are likely to remain supported, while industries tied closely to volatile fuel costs or externally sensitive trade structures may face more uneven earnings outcomes.

Portfolio Implications

Our recommended posture for 2026 is selective rather than broad. We favour businesses and sectors where earnings are tied to essential demand, regulated or contracted revenue, domestic capital expenditure, and high-visibility cash flow. That leads to a constructive view on utilities with grid and generation exposure, power equipment, transmission, energy infrastructure, select industrials, defence-related beneficiaries, and technology enablers linked to enterprise productivity and infrastructure rather than purely narrative-driven growth.

We are more balanced on consumer and rate-sensitive cyclicals. The combination of a more fragile consumer backdrop, higher fuel costs, and a more cautious policy environment supports a narrower approach centred on quality and pricing power rather than broad discretionary exposure. Companies with weaker balance sheets, dependence on external capital, or business models that require continued easy financing conditions should face a tougher market in this regime.

In practical portfolio construction terms, we see the strongest 2026 framework as a barbell. One side emphasizes defensive and high quality cash flow generators with pricing power. The other emphasizes sectors benefiting from structural capital expenditure in electricity, infrastructure, security, and domestic capacity. That balance allows our portfolio to participate in durable investment themes while remaining grounded in a regime that is placing greater value on resilience and funding independence.

Key Recommendations

• Increase exposure to power-related infrastructure, including regulated utilities, transmission, electrical equipment, and energy systems linked to data center growth and domestic capacity expansion.
• Emphasize companies with clear pricing power, strong free cash flow, and balance sheet flexibility.
• Monitor private credit conditions as an input into public market risk appetite and sector positioning.
• Maintain policy awareness as a core part of investment selection heading into the midterms period.
• Favour resilient business models and essential assets over broad cyclical exposure and capital-dependent growth.

Closing View

The 2026 market is best understood as a transition from broad disinflation optimism to a more demanding environment defined by policy friction, power scarcity, and tighter capital discipline. The sectors best positioned for leadership are those that sit at the intersection of hard economic necessity and strong financial quality. Power systems, infrastructure, domestic capacity, security-related demand, and self-funded business models fit that description. Private credit deserves close attention because it is now large enough to shape the financing backdrop for the wider market. In this regime, our portfolio is built around resilience, selectivity, and exposure to the assets the economy increasingly cannot function without.