Tactical Asset Allocation - February 2026

Global growth is moving above trend, and risk appetite continues to accelerate. Our framework enters an expansion regime for the first time since 2022. We increase our overweight in equities versus fixed income, and underweight duration and the US dollar.

Our macro process drives tactical asset allocation decisions over a time horizon between six months and three years, on average, seeking to harvest relative value and return opportunities between asset classes (e.g., equity, credit, government bonds, and alternatives), regions, factors, and risk premia.

Macro update

Global markets inaugurated 2026 with strong positive momentum in equities. Cyclical assets with higher operating leverage and sensitivity to global growth strongly outperformed in January, confirming the inflection point we registered in early November when our framework moved to a recovery regime. Value, small and mid-caps have strongly outperformed more defensive characteristics such as quality, low volatility and large capitalization. 

Global risk appetite was fueled by confirmation of resilient growth around the world, stable inflation, and a supportive backdrop from both fiscal and monetary policy. The re-steepening of yield curves across developed markets, with long-term rates above short-term rates by 70-100 basis points, is indicative of easier credit conditions going forward, increasing the odds of a longer cycle. 

Our global leading economic indicator suggests growth is gaining momentum across regions and is finally moving above trend for the first time since 2022 which, coupled with improving global risk appetite, moves our macro framework to an expansionary regime for the global economy. The improvement was broad-based across nearly all countries covered in our framework, led by the US, developed markets ex-US, and emerging markets, except for China where growth remains positive and stable but without clear signs of sustained acceleration yet (Figures 1 and 2). 

In terms of economic sectors, consumer sentiment is gaining momentum across regions. Manufacturing activity, housing indicators and business surveys are gradually bottoming out. Inflationary pressures remain muted, but noticeable volatility in commodity prices, particularly metals and energy, have the potential to change this picture in the near term (Figure 3). 

Overall, our framework confirms a growth and inflation mix consistent with a goldilocks scenario, favorable for risk assets and cyclical exposures with more upside for equities than credit given historically tight spreads across sectors. We reiterate our main takeaway that broader diversification across equity sectors and regions provides a prudent strategy to maintain an overweight posture in risky assets while mitigating exposures to the expensive corners of US equity markets. 

Investment positioning 

The transition to an expansion regime for the global economy leads to several portfolio changes in the Global Tactical Allocation Model¹ this month. We increase the portfolio risk profile relative to benchmark, increasing the overweight in equities relative to fixed income while maintaining regional exposures in line with the benchmark. In fixed income, we maintain a moderate overweight in credit risk² but reduce portfolio duration from neutral to underweight versus benchmark (Figures 4 to 7). In particular:

• In equities, we maintain overweight exposure in cyclical sectors with a tilt to value and a moderate overweight to mid-cap equities relative to large caps. As the economy improves and global yield curves steepen, we continue to expect sectors with higher operating leverage to outperform. Hence, we favor financials, industrials, materials, and energy at the expense of health care, staples, utilities, and technology. We maintain a regional composition in line with the benchmark given mixed signals among key drivers of relative performance between US, developed ex-US and emerging market equities. While the US continues to exhibit the strongest earnings momentum across regions, dollar depreciation pressures driven by narrowing yield differentials, and positive surprises in global growth, provide offsetting tailwinds for international equity markets. As a result, we maintain a neutral position and express no active views in regional exposures at this stage, waiting for a more decisive alignment in macro drivers.
• In fixed income, we maintain a moderate overweight in risky credit, harvesting higher yields relative to investment grade and government bonds in an environment of improving growth and stable inflation. Further spread compression is highly unlikely at this stage, but a stable macro environment remains favorable for credit markets and carry trades more broadly. Therefore, we look for diversification across high yield, leveraged loans and emerging markets dollar debt, and underweight investment grade credit and sovereign fixed income. As global growth moves above trend, we move to an underweight duration posture, expecting global yield curves to continue to steepen. Our bearish positioning on the US dollar also favors emerging markets local debt and global fixed income, currency unhedged, relative to core domestic fixed income. Following the year-to-date widening in breakevens, we close the overweight in TIPS and move to a moderate underweight relative to nominal Treasuries.
• In currency markets, we continue to underweight the US dollar, driven by narrowing yield differentials relative to the rest of the world and positive surprises in economic data outside the US. Within developed markets we favor the euro, the British pound, Norwegian kroner, Australian dollar and the Japanese yen relative to the Swiss franc, Canadian dollar, Swedish krona and Singapore dollar. In EM we favor high yielders with attractive valuations such as the Colombian peso, Brazilian real, Indian rupee, and Indonesian rupiah relative to low yielding and more expensive currencies such as the Korean won, Philippines peso, Thai baht and Chinese renminbi.

Investment risks

The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations), and investors may not get back the full amount invested.