A divergent yet positive outlook brings potential opportunities for ETF investors in 2026

Following a resilient 2025, the coming year could provide a wealth of opportunities for exchange-traded fund (ETF) investors, as monetary policy easing continues and technological developments drive economic growth.

Despite this backdrop, major economies are however facing differing headwinds but there is still optimism - the International Monetary Fund has raised its 2025 global growth forecast to 3.2% from the 3.0% it projected in July and has kept its 2026 estimate at 3.1%.¹

The continuing and rapid development of artificial intelligence (AI) is one of the key areas spurring equity market performance, not least technology stocks – but also creating advantages, and potential investment opportunities, in other sectors.

And while the sector has endured recent volatility on the back of valuation concerns, the appetite for datacentre infrastructure and cloud computing is not retreating. And certainly, AI’s wider applications are considerable – from industry to renewable energy, medicine and agriculture.

However, US inflation remains a concern, as the full impact of President Donald Trump’s tariffs may remain to be seen. Despite this, we expect the US economy to remain resilient, and a potentially fruitful source of opportunities for ETF investors.

Europe gaining momentum while China slows

European economic growth has been subdued in recent quarters but is regaining momentum, while fiscal and monetary policy is supportive of expansion. Germany’s €1.1trn spending plan will boost investment in infrastructure and defence and should help to accelerate growth both domestically and more widely across Europe.

The European Central Bank meanwhile is expected to maintain low interest rates, while headline inflation is easing, though underlying price pressures remain sticky. Europe still faces trade, geopolitical and competitiveness challenges but 2026 should also see the bloc make progress on addressing these headwinds.

We believe that European equities offer potential opportunities for ETF investors as the region pursues greater strategic autonomy and valuations remain attractive.

In Asia, China’s growth is expected to moderate further, despite government stimulus measures aimed at boosting consumption, among other areas. However, China’s technology sector offers potential for growth.

Lower rates supporting fixed income

Easing monetary policy is likely to support bond markets in 2026, though risks remain. High levels of public borrowing could pose cause for concern in some government bond markets while Germany’s ambitious spending programme will see more bond issuance, with the additional supply of debt potentially impacting pricing.

Credit markets delivered positive returns in 2025 and underlying corporate fundamentals remain solid. However, currently tight credit spreads (differences in bond yields) could limit returns in investment grade and high yield bonds and there is a risk that credit markets could experience periods of underperformance in relation to government bonds.

Despite this, the overall environment remains supportive for credit, with attractive yields and solid corporate fundamentals.

We believe these challenges require flexibility in fixed income strategies, as ETF investors navigate economic growth challenges and an uncertain inflation outlook. We see opportunities in several areas including those traditionally seen as defensive, as well as real estate, and high yield.

Sustainability remains a focus

Sustainability remains an important focus for ETF investors. Despite pushback against environmental, social and governance investing in some quarters, the commitment to sustainability remains strong across Europe and Asia. Climate remains the top priority for many ETF investors, and we see potential opportunities in green bonds as well as the transition to a low-carbon economy. Investors are also allocating capital to solutions that address biodiversity challenges, and we see potential upside in sectors including clean energy, sustainable agriculture, and water management.

We believe that the key themes for investing in 2026 are flexibility, sustainability and structural change, as markets adapt to greater fragmentation across the global economy. By taking a flexible, nimble approach, ETF investors will potentially be able to benefit from the myriad of opportunities over the coming year.