Increased dispersion and fragmentation in the global economy is creating opportunities for institutional investors in 2026, according to a new report by the International Forum of Sovereign Wealth Funds.
The report, which collected responses from long-term institutional investors representing more than $53.8 trillion in assets under custody at State Street Corp., found investors are more interested in selective, relative and long-horizon deployment, supported by valuation discipline and flexibility in implementation, instead of pursuing broad directional shifts.
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However, investors are also being cautious with the collective risk appetite moving to a neutral stance, the report said. Allocation decisions are reflecting early evidence of geographic rotation across equity and bond markets.
Global institutional investors reduced overweight holdings in the U.S. equity market last year in favour of emerging markets, the report said. Investors favour the U.S. because of resilient earnings and profitable companies, but outperformance has pushed valuations and is creating increased risk.
On fixed income, the report found that investors are underweight in U.S. Treasuries, Treasury Inflation-Protected Securities and U.K. government bonds with no signs of a change in fixed income strategy. Instead, the report found investors are interested in Australia, Japan and core Eurozone debt markets.
“Expectations of return normalisation, heightened sensitivity to valuation and concentration risks, and recognition of structural forces reshaping the global economy have reinforced the importance of diversification, liquidity management and governance discipline within long-term portfolio frameworks,” the report said.
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