Rising volatility revives case for absolute return investing

Binaya Dahal

Journalist

4 February 2026

Absolute return strategies are emerging as a key diversifier for investors as equities and bonds increasingly move in sync, with rising volatility and more rational pricing opening up opportunities on both sides of the market, according to global asset manager Janus Henderson.

Portfolio Manager at Janus Henderson, Luke Newman said the environment has shifted after more than a decade in which markets rewarded a “long first” mindset and urged investors to change the playbook.

“The conditions now in place – wider stock dispersion, more rational pricing, and a healthier cost of capital – create an unusually constructive backdrop for absolute return investing,” he said.

“This is an environment that rewards selectivity, discipline, and flexibility rather than reliance on market direction.”

On the long side, Newman said financial stocks that have undergone years of balance sheet repair and operational restructuring are well positioned to benefit from lower interest rates and depressed valuations.

Furthermore, he sees potential in European aerospace and defence companies where geopolitical uncertainty and domestic security priorities have continued to underpin demand.

On the short side, Newman said opportunities lie in companies facing cost inflation with a diminishing ability to pass those costs on through higher prices.

While artificial intelligence (AI) has dominated equity market performance since 2023, Janus Henderson has warned the theme has become increasingly crowded.

“We see more compelling opportunities in ‘AI‑adjacent’ areas – parts of the market that have either been overlooked, or associated services,” the manager stated.

“This includes perceived ‘AI losers’ – high‑quality, data‑rich business-to-business providers that have been (in our view) harshly treated on fears that AI would undermine their business models.

“This intersects with another emerging theme – pockets of disinflation – where we see AI as acting as a potential ‘silent hand’, compressing costs in services, manufacturing, etc, which can potentially help to lower price pressures across the global economy.”