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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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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Kev Toohey

AXA Investment Managers (AXA IM) has launched its first ever fully integrated ESG SmartBeta strategy in the Australian market. The AXA IM ACWI SmartBeta Equity Fund (the fund) offers long term investors a more efficient way of capturing equity market beta, while avoiding the limitations of both market cap-weighted indices and alternative weighting schemes.

Powered by AXA Rosenberg, the quantitative investment arm of the global AXA IM group, the fund is now accessible via the Asgard platform, having been seeded with A$55 million from local Australian Financial Services Licensee, Financial Index Wealth Accountants (FIWA).

Kathryn McDonald, AXA Rosenberg’s director of investment strategy, said while smart beta and ESG might seem unrelated, both approaches reflected a move by investors away from standard index tracking.

“Overlaying smart beta with ESG is quite a new and novel concept but it’s one we feel is a very positive step. Our extensive research shows ESG smart beta can offer investors a lower risk and higher return than index investing, along with a defensive strategy with improved diversification and ESG performance – an attractive concept for long term investors.”

The fund also extends AXA IM’s well-established SmartBeta capability from developed to emerging markets via the All Country World Index (ACWI) ex Australia benchmark, offering  Australian investors a one stop shop for their global equity smart beta exposure.

New AXA IM fund now core part of FIWA’s global equity strategy

Advised by independent asset consultants Atchison Consultants, FIWA has said that based on a number of factors, the dealer group is open to increasing investment in the fund over the coming years.

Commenting on the partnership Kev Toohey, General Manager, at Atchison Consultants said the AXA IM ACWI SmartBeta Equity Fund was now a core element of its global equity strategy within the FIWA diversified strategies.

“We saw real value in moving away from a standard passive mandate towards a more effective means of harvesting the global equity beta. We were also attracted by the diversification play the fund’s emerging market exposure offers investors,” he said.

AXA IM’s SmartBeta strategies gaining positive traction

Today’s announcement follows Mercer’s A$150 million allocation to AXA IM’s global credit strategy in April this year. Globally, AXA IM’s smart beta strategies have garnered approximately US$2.5 billion from investors in the past 18 months.

Craig Hurt, AXA IM’s Director of Australia and New Zealand said a greater number of investors were implementing these intelligent, yet cost-efficient solutions:

“Since bringing our SmartBeta credit and SmartBeta equity strategies to the Australian market we’ve seen an increasing number of investors, both institutional and retail, look for a more intelligent and pragmatic approach to capture the market return. It’s exciting for Australia to be leading the charge on smart beta and ESG integration and that more investors, especially those in the post-retirement phase, can benefit from these types of solutions,” he said.

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