Diverging Performance Within Asset Classes Bolsters Case for Active Management

Northern Trust Asset Management, a leading global investment management firm with $1.4 trillion in assets under management as of September 30, 2025, expects the global economy in 2026 to continue to grow by maintaining momentum and avoiding recession, despite ongoing risks. Equities will be supported by strong fundamentals, fixed income investors must contend with a new inflation regime, and alternatives will prove central to multi-asset portfolio construction.

Global Co-Chief Investment Officer Anwiti Bahuguna, Ph.D. said, “In 2026, we largely prefer equities over bonds. However, structural divergence within the asset class provides a clear mandate for active management. Depending solely on momentum from the broad equity rally likely will prove costly, and security selection must be a core part of the investor’s toolkit.”

Global Co-Chief Investment Officer Chris Roth, CFA said, “While we expect inflation to remain contained at its above-average rate of about 3%, investors must closely monitor the tail risks of inflation reigniting. The Federal Reserve’s balancing act between fighting inflation and supporting the labor market risks inflation levels staying above target. Tariffs and tighter immigration policies may put pressure on prices through goods and wages.”

Northern Trust Asset Management’s full 2026 Global Investment Outlook can be found here.

Asset class highlights include:

• U.S. Equities: Strong fundamentals support equities, but stretched valuations and narrow leadership, especially among AI-linked mega-caps, signal a need for greater selectivity. The era of passive beta is giving way to one where quality, value and low-volatility factors can help advisors position client portfolios for resilience and long-term success.
• Treasury Inflation-Protected Securities (TIPS): Inflation is expected to remain above average at about 3%, with tail risks of it running hotter than market expectations. TIPS offer a compelling hedge, especially as breakeven rates lag behind current inflation trends.
• Global Bonds: Relying solely on U.S. Treasurys for portfolio diversification is a relic of the past decade. Global government bonds can provide diversification and a currency tailwind amid pressure on the U.S. dollar.
• Private Assets: Private credit is evolving, with tight spreads making direct lending less attractive and return potential shifting to more complex strategies such as asset-backed finance, distressed credit and real estate debt. Private equity buyout dry powder still far exceeds that of direct lending, suggesting ample runway for growth in private credit.
• Real Assets: AI bolsters the secular case for real assets, especially infrastructure. These assets are a direct beneficiary of long-term investment trends in technology (data centers) and energy transition (renewables, transmission grids). Infrastructure offers resilience and a necessary hedge against inflation that few other asset classes can provide.

Global Economic Outlook

The global economy continues to show resilience despite persistent risks. Supportive policies and lower interest rates are expected to compound economic momentum, helping markets avoid recession in 2026. However, risks remain elevated, including trade realignment, lingering inflation, government debt burdens, labor market shifts and geopolitical tensions. Across global regions, we expect real GDP annual growth under 2%, with the United States and Canada leading with estimated annual growth of 1.5%.

About Northern Trust Asset Management

Northern Trust Asset Management is a global investment manager that helps investors navigate changing market environments in efforts to realize their long-term objectives. Entrusted with $1.4 trillion in assets under management as of September 30, 2025, we understand that investing ultimately serves a greater purpose and believe investors should be compensated for the risks they take — in all market environments and any investment strategy. That’s why we combine robust capital markets research, expert portfolio construction and comprehensive risk management in an effort to craft innovative and efficient solutions that seek to deliver targeted investment outcomes. As engaged contributors to our communities, we consider it a great privilege to serve our investors and our communities with integrity, respect and transparency.

Northern Trust Asset Management is composed of Northern Trust Investments, Inc., Northern Trust Global Investments Limited, Northern Trust Fund Managers (Ireland) Limited, Northern Trust Global Investments Japan, K.K., NT Global Advisors, Inc., 50 South Capital Advisors, LLC, Northern Trust Asset Management Australia Pty Ltd, and investment personnel of The Northern Trust Company of Hong Kong Limited and The Northern Trust Company.

About Northern Trust

Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of wealth management, asset servicing, asset management and banking services to corporations, institutions, affluent families and individuals. Founded in Chicago in 1889, Northern Trust has a global presence with offices in 24 U.S. states and Washington, D.C., and across 22 locations in Canada, Europe, the Middle East and the Asia-Pacific region. As of September 30, 2025, Northern Trust had assets under custody/administration of US$18.2 trillion, and assets under management of US$1.8 trillion. For more than 135 years, Northern Trust has earned distinction as an industry leader for exceptional service, financial expertise, integrity and innovation. Visit us on northerntrust.com. Follow us on Instagram @northerntrustcompany or Northern Trust on LinkedIn.

Northern Trust Corporation, Head Office: 50 South La Salle Street, Chicago, Illinois 60603 U.S.A., incorporated with limited liability in the U.S. Global legal and regulatory information can be found at https://www.northerntrust.com/terms-and-conditions.

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