A diversified portfolio strategy the defining factor in 2026

Yasmine Raso

Senior Journalist, Financial Newswire

27 January 2026

Franklin Templeton and its specialist investment managers have delivered their investment outlooks for the year ahead, pointing out key opportunities for investors to capitalise on in US equities and fixed income by leveraging a more diversified portfolio strategy.

Focusing on US equities and technology, the Magnificent Seven group of companies have managed to overcome initial expectations of a fad by “monetising” artificial intelligence (AI) in a meaningful way, according to Jonathan Curtis, Co-Chief Investment Officer at Franklin Equity.

“In 2026, markets seem to be transitioning from a narrow, liquidity-driven regime to one shaped by fundamentals, innovation, and active management. We believe the coming years will reward investors who can distinguish durable innovation from cyclical enthusiasm,” he said.

“At the large-cap end of the market, valuations in the Magnificent Seven are often debated, but they are fundamentally explainable. These companies [are]… supporting revenue growth while simultaneously driving significant efficiency gains by embedding AI across their operations.

“While valuations may appear elevated on traditional metrics, they often fail to fully reflect the long-term earnings power that AI is likely to unlock for these businesses. Importantly, the U.S. opportunity extends well beyond the largest names. Valuations across the remaining S&P 493 are, in many cases, quite reasonable.

“Within this group, there are numerous knowledge-worker-intensive sectors, such as healthcare and financial services, that should see meaningful operational leverage as AI adoption accelerates. In addition, there are compelling opportunities among the enablers of AI across industrials, natural resources, and utilities.”

Zooming in on the US equity market, ClearBridge Investments’ Chief Investment Officer, Scott Glasser, said a “broadening market participation” would pave the way for diversified portfolios to perform strongly in 2026.

“With capitalisation-weighted versus equal-weighted S&P 500 Index returns at an extreme and an expected rebound in relative earnings growth for the average stock… the most remarkable factor driving markets over the last several years has been the resiliency of economic growth,” he said.

“Front-loaded fiscal stimulus from the One Big Beautiful Bill is estimated to add 50-100 basis points1 to Gross Domestic Product (GDP) this year and, while there is stimulus for both consumers and corporates from the bill, businesses will be able to immediately deduct capital expenses such as investments in equipment and Research and Development (R&D). This is expected to bolster overall capital spending, which should broaden and remain strong even if AI capex spending moderates in 2027 and beyond.

“Monetary policy should also provide a tailwind to the economy although, in our view, to a lesser degree than the market believes as long-dated yields could remain high with some risk to the upside. Fortunately, the impact of tariffs, both on supply chains and inflation, has been less inflationary than feared as distributors and manufacturers have been willing to absorb some of the impact.

“Overall, the effective tariff rate is projected to settle in the 6%–8% range2, less than half the assumed rate six months ago, due to a bevy of carve-outs and exemptions that have mitigated the impact.”

Moving on to US fixed income, Franklin Templeton’s fixed income division has confirmed its position that the “faster pace of productivity growth” seen in recent years is only set to continue in 2026 and beyond.

“For financial markets, macro is back in the driver’s seat in a way we haven’t seen in some time, Zero Interest Rate Policy is a fond distant memory, carry has its due, and the regime shift is bigger than just rates: a more multipolar geopolitical order, China’s structural slowdown, Japan’s reflation, Europe’s planned defense spending boost, and AI advances which could extend the productivity renaissance,” Sonal Desai, Chief Investment Officer, said.

“Against a constructive (though uneven) growth backdrop, we don’t expect a sharp rise in corporate defaults, but with spreads near record tights and heavy issuance, further tightening looks limited. We think the Fed will be cautious on additional easing, especially if fiscal tailwinds keep inflation sticky, so duration looks unattractive and investors would be wise to stay nimble while harvesting today’s attractive yields.

“With the US dollar still historically strong despite 2025’s depreciation, we believe global and emerging market diversification will likely play an increasingly important role in 2026 investment strategies. Finally, with valuations elevated and labor dynamics challenged, US growth looks increasingly levered to AI capex and the equity wealth effect, in our view creating clear winners and losers and making active management critical to navigate volatility and find the best pockets of value.”