Schroders' Chief Investment Officer Johanna Kyrklund noted that as 2026 begins, market concerns about equity valuations persist. Hyperscale cloud service providers continue making substantial investments in data centers and cloud infrastructure, while many AI startups remain unprofitable with valuations inflated by supplier financing. Despite this, Schroders maintains its expectation for positive equity returns and recommends geographic diversification, particularly favoring value investments outside the US.

From a valuation perspective, equity markets continue to benefit from stable bond yields, temporarily controlled inflation, and potential further monetary policy easing by central banks. Medium-term concerns include rising government debt levels globally and the possibility of accelerating inflation leading to higher discount rates, though these risks appear limited over the next six months. The US recession risk remains low, supported by still-tight labor markets, low unemployment, and healthy private sector balance sheets.

On individual stock risks, Schroders sees revenue potential among hyperscale cloud providers while monitoring their transition from "cash flow giants" to "capital expenditure heavyweights." The firm is also tracking performance of large language model and cloud computing companies as indicators of new technology adoption. Investment opportunities exist at the stock level, provided risks are taken based on thorough fundamental analysis rather than index weightings.

Schroders emphasizes diversified investment opportunities beyond AI. 2025 demonstrated the benefits of geographic diversification, with value investments performing well outside the US. Emerging market bonds offer superior dynamic and real yields compared to developed market bonds. Alternative investments like insurance-linked securities (ILS) and infrastructure debt may provide additional yield opportunities, while liquid hedge fund strategies offer enhanced diversification within portfolios.