Being a successful investor is as much about avoiding the wrong parts of the market as backing the right ones. That does not mean making portfolio decisions on a rigid 12-month horizon – few professionals believe investing works that way – but it does mean reassessing whether today’s most popular assets still offer a sensible balance of risk and reward.
After several years in which returns have been dominated by a narrow group of assets, particularly US mega-cap growth stocks and themes linked to artificial intelligence (AI), some managers now argue that expectations have run ahead of fundamentals.
Concerns range from speculative excess and stretched valuations to weak economic momentum, unfavourable demographics and policy headwinds, prompting caution across a number of once-favoured markets.
Downing’s Evan-Cook: Definitely not keen on US large-cap growth
Simon Evan-Cook, manager of the Downing range of funds of funds, is “definitely not keen” on putting money in US large-cap growth.
He also doesn’t have “any exposure whatsoever” to Bitcoin, cryptocurrencies or blockchain, despite fully understanding the reasons why they exist and why people like them.
“There has been a bit of a speculative frenzy going on over the past few years and I'm very happy being as far from it as possible. When I look at what is doing well in that frenzy, it tends to be US mega-caps and anything crypto-related.”
This however, doesn’t mean that he is avoiding all exposure to technology. One of his largest portfolio holdings is Landsea (formerly Sanlam) Artificial Intelligence (4%).
“We can see that artificial intelligence (AI) is going to have a massive impact not just on markets but on the way that everyone lives their lives, in the same way that the internet proved to be over the past 25 years. But it won't always be the same companies that benefit from it,” Evan-Cook said.
“We are ready and completely aware that at some point this fund might be very hard to hold, but probably most things in our portfolio on the other side [value funds] will be enjoying life while that's happening.”
Rathbone’s Coombs: “Uneasy” about AI picks-and-shovel companies
As the AI euphoria continued into 2025, the concentration of returns in a few top stocks was unrelenting. That has started to push the market to broaden out and buy up the ‘picks and shovels’ trade – companies supplying the power, putting down the cables and building the data centres.
This has made some utilities “unusually sexy” and sent them on trajectories normally reserved for capital-light tech growth stories, according to David Coombs, manager of the Rathbone multi-asset fund range, who wasn’t convinced that these less flashy names might end up the ultimate winners, as their current valuations seem to indicate.
“We own some of these ‘picks and shovels’ providers – some in power, some in components and cabling, others that develop data centres – but we’re feeling uneasy at current expectations. As investors keep trying to find hidden gems in this space, the risk of irrational exuberance taking over is high,” he said.
“As interest rates decline over the next two years, some of these sectors could underperform significantly as the market rotates back to more traditional growth businesses.”
FE fundinfo’s Younes: UK equities, bonds and hedge funds are less compelling
Looking ahead to 2026, several asset classes appear less compelling to Charles Younes, deputy investment officer at FE fundinfo, based on current macroeconomic and policy dynamics.
One is UK equities, which “remain unattractive, given persistent stagflationary signals and restrictive fiscal measures”.
“Economic momentum is weak and investor sentiment has deteriorated, creating a challenging backdrop for returns,” he added.
In fixed income, long-dated government bonds also warrant caution.
“While short-term rate cuts may occur, structural fiscal concerns and sticky inflation risks limit the potential for yields to decline meaningfully, reducing prospects for capital appreciation.”
Similarly, investment-grade corporate bonds “offer limited upside” as spreads are “historically expensive”. With macro conditions improving, the likelihood of significant spread widening is low, he warned.
“At the same time, falling government yields are unlikely to provide material support, leaving valuations stretched.”
Finally, hedge funds also face a difficult environment as low market volatility and elevated cash yields “create a high hurdle for zero-correlation strategies to outperform, diminishing their relative appeal,” he concluded.
Wealth Club's Moyes: UK and Europe cannot outrun overregulation and poor demographics
Jonathan Moyes, head of investment research at Wealth Club, said he would avoid the UK and European stock markets. Both enjoyed a rare moment of investor optimism in 2025, but “markets cannot outrun overregulation and poor demographics for long”.
“Next year is also a big election year for the bloc and that is sure to garner a healthy dose of pessimism from late 2026. Areas that offer more compelling long term earnings growth potential will soon return to favour and for this reason you cannot count the US out for long,” he said.
"Often it is the areas dubbed most ‘un-investable’ that surprise most on the upside. With that in mind, I would be cautious of disowning technology, AI or venture capital, there is far too much pessimism aimed in this direction.”