After a volatile 2025, the new year has begun with little sign of markets settling down. Darius McDermott, managing director at Chelsea Financial Services, sets out his outlook for the year ahead and the six areas he is backing to help navigate heightened geopolitical uncertainty:
The beginning of 2026 has served as a timely reminder that markets remain vulnerable to geopolitical shocks. After a strong period for risk assets, the year opened with a sharp rise in volatility across equities, commodities and currencies, driven by renewed uncertainty around global trade, energy markets and political stability.
A key catalyst has been the rapid escalation of events in Venezuela, including the capture and removal of long standing leader Nicolás Maduro by US forces. Although Venezuela currently represents a relatively small share of global oil production, it holds the world’s largest proven crude reserves. As a result, developments there carry outsized importance for energy markets and emerging market risk sentiment.
These events have occurred at a time when global markets are already facing elevated valuations and the late stages of the interest rate cycle. The initial response has been familiar: a move towards safe haven assets, renewed interest in precious metals and greater selectivity across equities and credit.
While the start to the year has been unsettled, periods like this often create attractive opportunities for long term investors. Our outlook for 2026 reflects a balance between acknowledging these risks and remaining focused on areas where sentiment and valuations appear disconnected from underlying fundamentals.
With markets expensive by historic standards and volatility likely to remain a feature rather than an exception, we are positioning the portfolio selectively. Below are the six areas we believe offer the most compelling opportunities for the year ahead.
1. Emerging Markets
Emerging Markets have been largely ignored in recent years but could benefit if the US dollar weakens further and global financial conditions ease. While geopolitical uncertainty can weigh on sentiment in the short term, we believe selective exposure remains attractive, particularly in markets driven by domestic growth rather than reliance on external capital.
M&G Global Emerging Markets is a standout in this sector, with an impressive long-term track record and well-defined process that helps provide balance to the fund. The management team believe that real cash flow is particularly important in emerging markets, given the unpredictable nature of these economies, making this a robust option.
2. UK Smaller Companies
UK smaller companies have been on one of their worst runs in living memory and remain well below their peak in 2021. This is a deeply unloved part of the market, which we find compelling. Capital has fled UK small caps, but even a modest change in sentiment or policy could trigger a meaningful recovery in our view. Valuations remain attractive and expectations are low.
IFSL Marlborough UK Micro Cap Growth has been a stellar performer. The Hargreave Hale team is renowned for its small-cap expertise and has delivered exceptional returns for investors over a very long period. The team has a proven capability of adding value through stock selection as a result of company meetings and diligent research. Investors should be aware that this fund is a unit trust, and because it invests in small-caps, it is sometimes subject to swings between the bid and the offer price depending on fund flows.
3. Specialist Equities
We like specialist equities and have been adding to areas such as healthcare and insurance, which have lagged while investor attention has been dominated by artificial intelligence (AI). These sectors offer defensiveness, cash flow visibility, and more attractive valuations, providing diversification at a time of heightened macro uncertainty.
The healthcare sector is a broad collection of different companies, some with vital business operations. As such, it requires specialist skills which this fund has in its management. The Polar Capital Healthcare Opportunities offers a blended portfolio, and an investor can get exposure to everything from stable, big pharmaceuticals, to the best biotechnology opportunities. The fund’s unconstrained and concentrated approach offers a great opportunity for investors to get specialist exposure.
4. Real Estate Investment Trusts (REITs)
Certain REITs are increasingly interesting after a torrid period since interest rates began rising aggressively in 2022. Although rates are now starting to come down, many REITs remain severely depressed, trading at wide discounts to asset value and offering attractive dividend yields. Selectivity is key, but we see opportunities where balance sheets are robust.
There are a wide number of drivers behind the performance of the European real estate market, but the resources and experience of the Cohen & Steers European Real Estate Securities team allow them to disseminate all the information available to them and build a risk aware portfolio which can offer investors exposure to this diversifying asset class, knowing it is backed with a repeatable, sound process.
5. Artificial Intelligence
We are slightly cautious on AI but still want some skin in the game. Despite widespread scepticism, earnings continue to come through, and this does not feel like a late 1990s style bubble. Don’t be surprised to see AI related stocks continue to perform if earnings momentum is sustained.
Landseer Global Artificial Intelligence is a global equity fund that uses its own AI system to identify companies genuinely positioned to benefit from artificial intelligence. The strategy launched back in 2017, long before the current AI hype cycle. That gives it one of the longest track records in the space and shows these managers were thinking years ahead – not simply jumping on the bandwagon.
6. Silver
Silver is a higher risk choice and is not known as the “devil’s metal” for nothing. Despite is high valuation following its strong performance, the fundamentals remain supportive for continued growth. The silver market has been in a structural deficit for several years, industrial demand continues to rise – driven by solar panels, electric vehicles, and data centres – and demand from India and China remains strong. Inventories in London vaults are also low. In an uncertain geopolitical environment, silver may additionally benefit from its role as a precious metal.
A truly unique fund, Jupiter Gold & Silver invests in both physical gold and silver bullion, as well as gold and silver mining companies. The fund’s ability to hold up to 70% in silver also offers the potential for higher returns, albeit whilst increasing the risk profile.
