What's the MyFolio team expecting in 2026, and how are we positioned?

In our latest virtual event, Deputy Chief Economist Luke Bartholomew and Head of Portfolio Management Rob Bowie reviewed 2025 performance and outlined the themes shaping 2026.

Macro: resilience and risk

Fourth-quarter 2025 was characterised by significant disruption, including a 43-day US government shutdown, UK pre-budget uncertainty, and rate cuts from both the Federal Reserve and the Bank of England.   

Looking forward into 2026, Luke noted that the US economy has held up better than expected. Growth continues to be supported by strong AI-driven capital investment, elevated asset prices boosting household wealth, short-term fiscal stimulus through rebates and tax reductions, and the lagged impact of earlier rate cuts - likely followed by further easing later in 2026.

The main risk is a weakening US labour market. While rising productivity may partly explain the divergence between strong activity and softer employment data, historical patterns suggest early labour market weakness can spread through lower sentiment and spending. For now, this remains a risk scenario rather than the base case.

Policy trends

US

Policy trends are central to the outlook. The Federal Reserve is expected to adopt a more dovish stance under a new chair, with two rate cuts anticipated in the second half of the year. The main concern is excessively loose policy, which could reignite inflation that is now broadly back to target.

UK

In the UK, inflation is easing as wage growth slows and base effects take hold. With the labour market remaining soft, the Bank Rate is expected to fall from 3.75% to around 3.0% over 2026. Political leadership changes, and any shift in fiscal policy, remain key watchpoints for gilts.

Global

Globally, 2026 is shaping up to be a year of policy divergence. Eurozone rates are likely to remain on hold before rising modestly in 2027 amid more expansionary German fiscal policy. Japan faces upward rate pressure due to a weak yen, above target inflation, and reduced market tolerance for large scale fiscal easing.

Geopolitics

Geopolitically, while markets have largely ignored recent headline events that did not affect commodity prices, the broader trend points to structurally higher geopolitical risk. This typically leads to greater inflation volatility and more frequent positive equity–bond correlations, increasing the importance of diversification.

MyFolio 2025 outcomes

Rob highlighted that 2025 was a transformational year for MyFolio, with refinements to propositions, regulatory compliance, and cost efficiency.

SDR-compliant ESG ranges were updated, and MyFolio Core was reshaped into an unconstrained hybrid approach blending active, passive, internal, and external capabilities. Following a successful merger, MyFolio Index became a £9.4 billion (1) passive solution guided by an active strategic asset allocation - crucial given today’s concentration risks in global indices.

Performance

Despite volatility, asset class performance was strong in 2025. UK and European equities led fourth-quarter returns, with Asia, emerging markets (EM), and Japan also contributing. US equity returns were held back in sterling terms by a weaker dollar, while the euro’s appreciation boosted European gains.

Fixed income delivered positive results across emerging market debt, high yield, and corporate bonds. 

Rob talked through the latest update on the portfolios, highlighting that we saw broadly encouraging performance across the MyFolio ranges.

To see full performance details, visit our Lookthrough reports page or access fund factsheets via our fund centre.

Positioning for 2026

Long-term capital market assumptions continue to favour fixed income, which offers attractive prospective returns. Equity expectations remain positive but have moderated - especially in the US, where valuations are elevated and leadership narrow. As a result, MyFolio continues to emphasise diversification, with meaningful allocations to Asia, EM, Japan, and the UK, alongside a carefully balanced US exposure.

Final thoughts…

With macro tailwinds still present but more uneven, and geopolitical complexity rising, diversification is more important than ever. The refreshed MyFolio line up - lower cost, actively allocated, and flexible - proved resilient in 2025 and is well positioned for a more selective return environment in 2026.

If you’d like to catch up on the MyFolio Q4 2025 webinar, you’ll find the recording here. For more information visit our website, or contact us.