Articles - If I were a Chief Investment Officer where would my focus be

 

Against that backdrop, here is how we would approach 2026 if we were wearing a Chief Investment Officer’s hat. 

 

 

Despite the occasional wobble, most developed-market equities finished 2025 at or near all-time highs. Price-to-earnings multiples have stretched, especially in the AI-themed growth stocks, making even modest earnings disappointments hazardous. 

 

Investment-grade and even high-yield bonds are trading at some of the tightest spreads since 2007. Investors have chased yield in private credit too, fuelling fears of covenant-lite financing and overexuberant lending practices.

 

Sluggish real world growth, rolling energy shocks and an unpredictable geopolitical landscape, with its accompanying volatility in sovereign bonds and currencies, leave little margin for error. The phrase “highest level since 2009” appears with disquieting frequency.

 

From AI equities that price perfection, to private credit funds promising equity-like returns with bond-like risk, investors are reliving uncomfortable echoes of both the dotcom era and the pre-Global Financial Crisis “search for yield”.

 

Against this backdrop some of my colleagues and us have conducted a thought experiment. And like all the best thought experiments it involves an evil demon. Imagine an evil demon had slipped into your systems on 31 December 2025 and liquidated every position in your portfolio, leaving you with nothing but the equivalent amount of cash for the next morning. You awake on 1 January 2026 to a blank slate. Faced with the prospect of rebuilding, would you really go out and repurchase the same assets you previously held at today’s prices?

 

The point of this is to strip away the anchoring bias that can often influence investors. When the default is not to own anything, the hurdle rate for buying back feels drastically higher. In our case, it forces an uncomfortable admission: a significant chunk of public-risk assets currently looks rich, and the risk-reward trade off in many private markets feels overheated. That does not mean everything should be sold or that Armageddon is inevitable, but it does argue for a defensive tilt until valuations or fundamentals improve.

 

With that in mind, what would we be thinking about as a CIO in 2026? Here are our priorities:

 

While insurance always feels expensive before the accident, now is not the time to let cover lapse. Consider how your portfolio would stand up to significant equity market draw-downs, a liquidity squeeze and swinging yields. Diversification is always desirable, but putting more specific hedges in place may also be worth the cost, whether that be derivative structures or alternative tail-risk hedging structures.

 

Clearly selling everything is uncomfortable, and whilst credit spreads are low they are not nothing. However, the compensation for locking your money away for ten years, doesn’t compensate you for the risk. Moving into credit with lower maturities still gives you some extra yield, but comes with added flexibility if markets re-price. Be wary chasing yield in late-cycle markets. We wouldn’t be searching for extra return in sub-investment grade debt right now.

 

Cash yields may be falling, and holding too much of it erodes the value of your portfolio when compared to inflation, yet it carries immense optionality when volatility spikes. Flexing strategic allocations to high-quality short-dated government bonds upwards gives you some ready ammunition if risk assets cheapen. Paying down any debt against hedging positions may be a better use of proceeds from risk asset sales than anything else right now.

 

The new year should be a time of optimism, but it is no place for complacency. Valuations that imply nothing can go wrong rarely age well. By focusing on protection, prudent duration, liquidity and opportunistic flexibility, a Chief Investment Officer can enter 2026 prepared for both adversity and the bargains that adversity eventually brings. As you begin a fresh year, may your portfolios flourish - and may mischievous demons stay firmly outside the firewall this year.