Kevin Toohey

Investors heading into 2026 face a markedly more selective market environment, with dispersion, valuation discipline and earnings durability set to drive outcomes, according to asset consultancy firm Atchison.

Markets in 2025 rewarded investors who resisted concentration and stayed disciplined on valuation, according to asset consultancy firm Atchison, as a long-running reliance on policy support gave way to a more selective, earnings-driven regime.

In its annual assessment of the winners and losers of 2025, Atchison found that while global equities delivered broadly positive returns, outcomes diverged sharply across regions and asset classes. Leadership rotated away from the most crowded trades of the past decade, with income and valuation once again playing a decisive role in total returns.

Kev Toohey, Principal at Atchison said 2025 marked a clear inflection point for markets.

“The conditions investors are facing in 2026 are very different to those that dominated the past cycle,” Toohey said.

“Markets moved away from being propped up by policy expectations and toward rewarding assets with durable earnings, realistic valuations and reliable income.”

The following asset classes stood out according to Atchison:

Winners

• European equities, supported by easing energy pressures, improving manufacturing sentiment and expectations of gradual monetary easing, with valuation discounts to US equities underpinning relative returns.
• Chinese equities delivered strong returns for a second consecutive year as targeted stimulus improved sentiment and earnings prospects, albeit with outcomes highly dependent on stock selection and policy awareness.
• Income assets, especially credit, benefited from elevated carry, reinforcing their role as a reliable income source and portfolio stabiliser.

Losers

• Concentrated and narrow exposures, where reliance on single themes or aggressive valuation expansion lagged broader markets, reinforcing the importance of diversification.

“Concentration was no longer a free option in 2025,” Toohey said. “Markets became far less forgiving of narrow leadership and stretched valuations.”

Positioning for 2026

Looking ahead, Atchison expects dispersion to persist as policy paths diverge and earnings differentiation increases across regions and sectors.

“Australian equities face headwinds from further rate pressure, keeping our focus on large-cap quality,” says Toohey. “International equities continue to offer the strongest opportunity set, particularly in Europe, Japan and parts of Asia, while US equities move to a more neutral footing after another technology-led year.”

He added that real assets, including A-REITs, remain challenged by higher rates, while alternatives continue to play an important role, albeit with some profit-taking in gold.

“The defining feature of the next phase of markets is selectivity, not just between asset classes, but within them.”

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Mishan Dahia, Atchison Investment Analyst said, “The macro backdrop is becoming more supportive, with inflation easing and both the Federal Reserve and the Reserve Bank of Australia expected to implement multiple rate cuts before year-end. However, elevated valuations, particularly within pockets of US mega-cap growth companies, necessitate a selective approach.”

“We are tilting towards quality global equities, increasing exposure to duration, and diversifying into alternatives, rather than chasing overheated market segments.”

A central theme of the TAA outlook is the shift in global monetary policy, with major central banks pivoting towards easing. This has created a favourable setting for risk assets, but Atchison emphasises the importance of balancing opportunity with valuation discipline.

Atchison’s key tactical positioning includes:

• Overweight to international equites, supported by expected rate cuts and muted market reactions to recent trade and geopolitical developments.
• Modest to overweight to European equities, buoyed by European Central Bank easing, and foreign investor demand as diversification from US tech.
• Underweight to Japanese equities, where inflation pressures and slowing growth weaken the outlook.
• Increased allocation to alternatives, with a focus on private equity and gold for diversification and downside protection.

Dahia added, “Central bank decisions and earnings dispersion will set the tone for risk assets this quarter. The rate environment is becoming more supportive, but concentrated market leadership and pockets of stretched valuations require investors to remain tactical and disciplined.”

Atchison continues to advocate for diversified portfolios that blend tactical opportunities with structural resilience, leveraging its asset allocation framework to navigate an environment defined by crosscurrents and shifting market regimes.

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Atchison Principal, Jake Jodlowski highlighted that, “We foresee a stable growth trajectory, particularly in developed markets, offering a reliable backdrop for our strategic asset allocation positioning.”

A central theme of the TAA outlook is the anticipated actions of major central banks, particularly the U.S Federal Reserve, with markets now pricing in two rate cuts by January 2025.

This outlook is supported by signs of easing inflation. Jodlowski added, “the gradual reduction in rates, as inflationary pressures diminish, supports a positive stance on risk assets, particularly equities, this comes despite concerns around the valuation of some pockets of the market.”

He further noted that, despite significant political events, including the U.S Presidential election, market fundamentals remain strong, allowing for a long-term investment focus. “While elections can cause short-term volatility, the market’s underlying strength offers resilience.”

Atchison advocates a pro-risk approach, with a notable overweight in international equities and credit. The asset consultancy favours mid-cap equities in Australia and sees an attractive valuation differentiated in emerging markets.

“Our confidence in international equities, especially outside China, is underpinned by solid economic fundamentals and supportive valuations.”

The outlook also includes a neutral stance on duration and an underweight position in cash, anticipating stable bond yields and potential rate cuts.

“We see limited value in holding cash for investors and prefer to explore higher-yielding credit opportunities.”

The TAA Outlook urges caution regarding real assets particularly some parts of the commercial property sector, recommending targeted investments in essential infrastructure and gold to hedge against potential market volatility.

Infrastructure investments and gold offer protection against inflation and market fluctuations, providing a safe haven amidst economic uncertainties.

“Persistent inflation could compel central banks to maintain a tighter stance, potentially challenging risk assets. We caution against complacency, advising vigilance in risk management.

“Current low volatility should not lull investors into a false sense of security. A diversified and balanced portfolio remains essential, and the role of relevancy has been more competent.”

The approach of Atchison is to leverage growth opportunities, while protecting against downside risks, ensuring long-term value for clients.

Atchison believes this is best delivered from as asset allocation level, at time executed via the groups unique assets class sleeve SMAs.

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Kevin Toohey

Asset consultancy firm, Atchison delves into the evolving landscape of Australian small caps in their newly released Quarter One 2024 Tactical Asset Allocation Outlook, including its impact on their approach to credit.

Atchison Principal Kev Toohey says, “The potential resurgence of Australian small caps is characterised by market capitalisations ranging from $50 million to $500 million.”

Toohey underscores the challenging performance of the S&P/ASX Small Ordinaries Index in recent years, with a historic -20.7 percent decline in 2022. This was followed by modest gains of +4.72 per cent in 2023.

Remaining optimistic for the forthcoming two years, Toohey cites factors such as moderating inflation, alleviating cost of living pressures, enhanced consumer sentiment and supportive business borrowing, alongside the potential for a Chinese stimulus package.

Toohey anticipates rate cuts from September 2024, while acknowledging the persistent challenge of inflation. Therefore, emphasising Atchison’s conviction in early tactical investment and prioritising a larger margin for safety.

Atchison Principal Kev Toohey says, “We have added to our Australian small cap exposure, doing so via active managers where we see attractive conditions for security selection to add value above index.”

Performance of Australian Small Caps

Reflecting on historical performance and the cyclic nature of Australian small caps, Toohey notes declines of -6.8 percent in 2014 and -11.3 percent in 2018. However, each downturn was followed with three years of gains, informing Atchisons cautious yet optimistic approach to exposure levels.

Focus on credit exposure

With threats looming over spread being at the low end of their value range, exposure to credit is taking precedence for investors.

Toohey concluded, “We believe that with yields where they are, the returns on investment grade credit (IG) are too good to ignore for most investors, avoiding the need to chase returns further down the credit quality spectrum.”

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The Reserve Bank will persist in raising rates in the second half of 2023.

Australians can brace for further interest rate increases in the second half of the calendar 2023, says Mishan Dahia, Investment Analyst of the asset consulting firm Atchison.

“The Reserve Bank will persist in raising rates in the second half, with each month being actively monitored for potential changes as both headline and core inflation moderate downward, bringing with it significant hardship to many Australian mortgage holders transitioning from fixed to floating rate loans.

“It means the reduction in disposable income will be substantial, due to both the rate of adjustments and the cumulative effect of previous rate increases, that have not yet been transferred to borrowers.”

“The silver lining is the labour market that has improved slightly in recent months, leading to an exceptionally low unemployment rate.”

In the June 2023 quarter, the annual CPI (consumer price index) was six per cent, below the seven per cent increase in the March 2023 quarter. This represents the second consecutive quarter of declining annual inflation following the peak of 7.8 per cent in the December 2022 quarter.

But Dahia remains unconvinced that falling inflation means the end of interest rate rises in the immediate future. “The target CPI range is between two-three per cent, and strong jobs data in June (double that of expectations), as well as a tight labour market, suggests the Reserve Bank will err on the side of caution and lift rates again to drive inflation down.

“Although it is predicted that the headline inflation number will drop to 4.5 per cent by the end of this year and continue declining to 3.1 per cent by December 2024 – within striking range of target CPI – it is likely that it will consider higher interest rates essential to achieve this outcome.”

Dahia says that Atchison expects the Australian economy to grow at a slow rate, with corporate earnings put under greater pressure in the face of persistently high inflation and higher interest rates.

“But despite these headwinds, we are still long Australian equities and feel comfortable holding quality names at the right valuation.”

Globally, Dahia expects China’s economic recovery to persist, albeit unevenly, with investment and industry experiencing slower progress. “Consequently, our GDP growth forecasts for China in 2023 range between four-five per cent.

“One bright spot is Japan, where equities could continue outperforming as the country moves out of deflation and transitions to a mildly inflationary economy. In addition, the Bank of Japan is moving much slower on monetary policy normalisation than other central banks.

“Although Japanese equities have recently surged to post-bubble highs, the outperformance appears sustainable off the back of the Tokyo Stock Exchange’s call earlier this year for companies to focus on sustainable growth and enhancing corporate value. This call was particularly directed at companies with a price-to-book ratio of below one.”

He expects US growth to moderate in the second half of 2023, despite the current bullish outlook from investors following the hype about AI.

In the second quarter, the US stock market continued its upward trajectory, with approximately 75 per cent of the overall gains attributed to the returns of only seven companies. Year to date, and as of the 30th of June 2023, the seven companies driving the Nasdaq include NVIDIA +196 per cent, Meta +130 per cent, Tesla +142 per cent, Amazon +52 per cent, Apple +55 per cent, Microsoft +42 per cent, and Alphabet +34 per cent. 

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Jake Jodlowski

The financial advisory industry is at a watershed. Its preference for customised multi-asset portfolios that gives them a direct input into client investment decisions will increasingly give way to ready-made portfolios that place investment decisions in external hands, freeing advisers to better allocate their time servicing clients and building their practices.

Platforms such as Colonial First State and HUB24 will soon be/are offering Atchison’s ready-made portfolios and, in our opinion, it will appeal to the new breed of adviser for whom making investment decisions – in practice, it effectively means researching and choosing fund managers – is less important than the need to focus on having profitable businesses that are client-centric.

Many wealth management businesses have traditionally used asset consultants to research, construct, and maintain their customised multi-asset portfolios. They have enjoyed having the capacity to be directly involved in the investment decision-making process as a part of their service offering to clients.

With some wealth businesses, this involvement can be justified. The wealth business is adequately resourced, and their advisers have a genuine interest in and knowledge of investment markets and can make a valuable contribution to the process. Other factors that can come into play for those wanting customised multi-asset portfolios are having a point of difference for clients, a sense of client obligation, and a need to stay informed about different asset classes and investment strategies.

But in our experience as asset allocators and managers, those arguments are carrying less weight with the new generation of advisers. They are more relaxed about conceding investment decisions to a professional asset manager provided the ready-made portfolio allows them and their client to overlay their specific investment strategy and to be able to appreciate any risks inherent in the strategy.

For these advisers, there is a realisation of just how difficult investment decisions have become given how quickly investment markets can turn and plethora pf investment products available. Far better to leave that responsibility – and blame if necessary – with the professionals. For example, inflation is expected to cool in the second half of 2023, but whether it gets back within the two to three per cent range – the comfort zone for most central banks – by 2024 remains to be seen. If not, expect central banks, having been bitten once by the inflation bug, to be shy again about loosening monetary policy.

In the US, debate rages among economists whether the economic slowdown will be soft or hard. Few economists dispute there will be a slowdown. Those in the soft camp point to the ongoing tight labor market, despite the sharp spike interest rates (0.25 per cent to more than five per cent) in a little over a year. Those in the hard camp say sharp interest rate rises have traditionally triggered deeper recessions and can see no reason why this time should be the exception.

Then there’s China. The initial pick-up after Beijing decided to lift its tough COVID restrictions in the first half of 2023 is petering out. Its property crisis is still to be played out. To what degree the Government is prepared to pump prime the economy remains to be seen. On the geopolitical front, Taiwan remains a flashpoint.

With these issues – and the countless others that can influence markets – there is debate, conjecture, and analysis. Countless articles by numerous experts dissect these issues daily. Which helps explain why an increasing number in the financial advisory industry are opting for a ready-made solution, especially when coupled with the growing complexity and array of asset classes and investment products. By doing so they can opt for a multi-asset portfolio that comes with an investment performance track record, and transparency, provided via a professional investment team boasting the requisite skills.

There are also other benefits such as an ability to obtain a lower ICR for clients due to pooling of investments and the provision by the asset consultant of timely and comprehensive investment reporting using the vast array of social media tools now available.

For asset consultants, the game remains the same whether it’s for a ready-made   or a customised version. This includes the modelling and establishing of investment objectives, strategic asset allocation, asset class ranges and performance metrics, as well as:

• research, blending and selecting underlying investment managers
• monitoring capital markets to take advantage through tactical allocation
• evaluating investment performance
• attending and presenting to investment committees
• providing marketing information and assistance, and
• monitoring all the above and keeping the adviser totally across the ready-made portfolio information.

The trend towards the adoption of professionally constructed and maintained ready-made portfolios seems to have been led by the larger wealth management groups as they seek efficiencies in their businesses whilst delivering positive investment outcomes for their clients. It will not be long before smaller and medium size practices burdened with managing bespoke portfolios follow suit.

By Jake Jodlowski, Principal 

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Kevin Toohey

International equities (unhedged), Australian equities and international equities (hedged) are the clear winners among the varying asset classes in the 2022-23 financial year, according to the asset consultancy firm Atchison.

At the conclusion of the financial year, international Equities (unhedged) increased +19%, Australian equities rose +15% and international equities (hedged) +10%.

Commenting on Atchison’s latest winners and losers report, Principal Kevin Toohey says: “It was a tumultuous year across the board, with 12 Reserve Bank interest rate increases pushing the cash rate from 0.10% to 4.10%, causing many asset classes to underperform.”

Toohey also stated “On the other end of the spectrum, the award for the worst-performing asset class went to commodities with a -21% decline. A contributing factor to its poor performance was crude oil sliding 26%. Gold managed to contribute +6%, but that performance was insufficient to keep commodities in the black for the financial year.”

Sitting alongside commodities as the losers within the financial year, sat GREITS with -7% and fixed income credit -3%.

Aside from inflation and a rising cost of living, the geopolitical crisis playing out in the Ukraine persuaded many investors to seek safer havens in 2022-23, with those exposed to defensive assets such as cash and gold benefitting from market volatility.

Some emerging markets also benefited from strong investor interest with Brazil returning +32%, Poland +39% and Mexico +38%. On the downside, China and South Africa went backwards, returning a -16% and -2% respectively.

On a global scale, US firms played a large role in the outperformance of international equities, either hedged or unhedged. Not surprisingly, technology and artificial intelligence stocks led the charge, with Apple, Google, Microsoft, and Nvidia leading the way. Tesla also held a spot with the leading technology stocks in the latter part of the financial year up 133%, but also fell 51% during the first half of the financial year.

For the year ahead, Toohey concluded: “The Reserve Bank surprised many this week with a ‘hawkish pause’ on rate hikes at 4.1%, but investors need to be wary as there could still be more interest rate rises in the pipeline with the monthly CPI data for May still sitting at 5.6%, well outside the bank’s 2-3% inflation target.”

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Kevin Toohey

Direct Property has been the best performing asset class over the past 20 years. It has returned an average 10.2 per cent between 2003-22, edging out Australian equities at 8.9 per cent, according to research by the asset consulting firm Atchison.

The findings, which encompass debt, equity, and property securities, as well as commodities and cash, also highlight how 2022 was the worst annual period in the last 20 years for the number of asset classes that were able to deliver a positive real return, being a return above inflation.”

Even in 2008 at the epicentre of the Global Financial Crisis, six asset classes – three bond assets, cash, direct property, and commodities – outperformed the CP.

Aside from commodities and direct property, which returned 17 per cent and 11 per cent respectively, only cash was in the black in 2022 with a one per cent return. The other 12 asset classes were in the red with G-REITs (-24 per cent), hedged international equites (-22 per cent) and A-REITs (-20 per cent) bringing up the rear. Nine asset classes notched double digit negative returns.

However, Australian equities and unhedged insertional equities held up better than most – both notched a minus one per cent return – especially when compared with fixed interest classes with long durations.

2022 was the second consecutive year that commodities have headed the list and the third time in the past five years, with international equities (hedged) and international equities (unhedged) taking first place in 2020 and 2019, respectively.

But Atchison Principal Kevin Toohey cautions investors about chasing the commodity rainbow. “Over the 20 years, commodities, which have topped the poll six times – A-REITs and emerging markets share second place with three apiece – have also come last in seven of the 20 years.

“Commodities tend to be binary in nature – periods at the very top of the table are typically followed by periods at the very bottom. Over the 20 years their average return has been 8.7 per cent, placing them ninth on the ladder.”

Other interesting trends the research reveals are:

• Emerging market equities (unhedged) have underperformed developed market equities (unhedged) for the past five successive years. This contrasts sharply with the first five years (2003-07) when emerging markets outperformed developed market equities (hedged and unhedged) four years out of five. In two of the five years emerging markets headed the list.
• Of the seven asset classes that have returned seven per cent or higher over the 20 years, four are equities, two are property (G-REITs and direct property) and one is fixed high yield credit.
• Three of the bottom five asset classes are debt, with three being government bonds. Cash comes in last at an average 3.5 per cent.
• The research is a salient reminder of the pre-GFC boom. In two of the five years (2004 and 2005) all asset classes outperformed the CPI, in two years only two failed to outperform it, and in the other year only three asset classes fell short of the benchmark.

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