Asset Allocation and Sector Focus in Summer 2026

JM Finn's Investment Office provide insight into the outlook for global sectors and regions.

by Jon Cunliffe

Head of Investment Office

As part of our focus on providing a high quality, personalised investment service, our Investment Office look to support our investment managers in their decision making when it comes to constructing client portfolios.

Our asset allocation committee is one example of this, via their monthly output showcasing their views on a global basis; this is then complemented by a sectoral view from the stock selection committee. The combination of these top down and bottom up opinions is an important resource for our investment managers to validate their own investment theses or to generate new investment ideas.

These committees, which consist of members of our research team and a number of investment managers, aim to provide a view that seems most suitable in the current climate. The output of the monthly meetings remains a suggested stance and it is important to note, that the views expressed are those of the committees and may not necessarily be those of your individual investment manager.

Here we present a snapshot of the current views.

SECTOR FOCUS

Overweight

Neutral

Underweight

Communications		The largest constituents of communications services (Alphabet and Meta) are both heavily exposed to AI and to digital advertising. Performance in both AI and digital advertising continues to be strong, however valuations in the sector are also elevated. Whilst we continue to like the long-term characteristics of the sector, we remain underweight as we see more attractive valuations elsewhere.
Consumer Discretionary		Consumer discretionary continues to benefit from persistent demand in areas such as travel and online retail. That said, consumer budgets are becoming more stretched, and tariff risks remain a headwind. We maintain an overweight position, focusing on segments where demand is more resilient, such as digital experiences, travel and premium services, and where valuations remain attractive, while staying selective given the sector’s sensitivity to consumer confidence and broader economic cycles.
Consumer Staples		The sector is stabilising as inflation gradually moderates and supply chain pressures ease. However, consumers continue to shift toward value channels and private label products, and there may be limited scope for companies to pass through further price increases in the current environment. Overall, the sector offers steady defensive characteristics and resilient cash flows, though upside may be limited until stronger real income growth emerges. We retain a neutral stance.
Energy		The oil price has been volatile over the last few months, with Brent Crude experiencing sharp movements driven by geopolitical uncertainty. Oil company performance has been more resilient, with many majors delivering stronger share price performance. Performance over the short to medium term will be driven largely by geopolitics, which can have a significant impact on oil prices and, in turn, the earnings profile of the sector. We therefore remain neutral.
Financials - Banks		Bank results have been solid with investment banking benefitting from the increase in asset volatility and fee revenue from a pickup in capital markets activity. We have a preference for US banks currently given the more favourable economic outlook. In the UK the greater risk of stagflation makes us more cautious. The regulatory environment in the UK is less favourable as additional bank taxes come back into focus. Overall, we remain neutral.
Health Care		Health care remains a source of defensive earnings with high pricing power and attractive long-term fundamentals. The non-discretionary nature of the products and services, paired with already high gross margins, means healthcare should be able to price effectively. With the alleviation of some of the regulatory overhang from the beginning of the Trump administration, valuations for pharmaceutical businesses have recovered, however we retain our overweight recommendation.
Industrials		Industrials performance continues to be concentrated largely in areas linked to electrification and data-centre related investment. Outside of these pockets, activity has been constrained by global industrial production (IP growth), though higher quality businesses have been able to deliver encouraging order growth numbers in 2026 so far. Despite this, valuations generally continue to look rich in the sector, which drives our underweight view.
Information Technology		Technology companies have performed well year to date. Tech stocks continue to be driven by AI and 2026 has seen the rise of AI agents that need to consume a lot of computer processing power. This is good for companies that rent out processing power and those selling products used in data centres — notably the semiconductor manufacturers, where performance has been very strong. Whilst we continue to expect the demand for AI to increase, we are also cognizant of the valuations in the sector and so remain underweight.
Materials		Strong performance in mining equities is being driven by positive price action in key commodities. Copper continues to be supported by the structural theme of electrification against a backdrop of reasonably tight supply.Iron ore continues to be supported by strength in the Chinese economy. Ex-UK, materials is more closely tied to industrial production growth which remains tepid in key regional geographies. We expect these trends to continue near term, which drives our modest tactical overweight.
Real Estate		Real estate markets have continued to recover. The sector is interest-rate sensitive, as changes in rates affect property portfolio valuations. As we look ahead to 2026, there are grounds for measured optimism, incorporating a modest recovery in housing, strong rental growth, and the broader residential investment market. We retain a neutral stance, balancing improving fundamentals against financing costs and valuation sensitivity.
Utilities		Our long-term preference for power over water utilities has continued to play out in 2026, with power supply an increasingly important component of the world’s data centre roll-out. This tailwind appears to be now fully baked into the valuations of power utility equities, which could somewhat dominate the usually defensive nature of such businesses. We continue to see structural problems with the UK water sector alongside these considerations and so overall move to a modest underweight on the sector.

ASSET ALLOCATION

UK		The case for an overweight to the FTSE 100 rests on its mix of valuation, income and macro exposure. The market offers a meaningful valuation discount relative to global peers, alongside a high dividend stream. Its sector composition – with greater weight in financials, energy and defensives – provides resilience in periods of higher inflation and interest rates, while its global revenue base reduces reliance on the domestic economy. Taken together, it offers a balanced and diversified return profile.
North America		Despite the lengthy blockade of the Strait of Hormuz which caused a rapid rally in the price of crude oil, the US continues to deliver steady growth. However, inflation remains sticky and there is a risk that policy stays restrictive for longer than expected. While there are expectations of eventual easing, the combination of elevated valuations, higher rates, persistent deficits and the prospect of a weaker US dollar suggest relative returns will be greater outside of the US.
Europe		Eurozone equities remain supported by modest growth and relatively undemanding valuations, but the outlook is finely balanced. Higher energy prices are a key swing factor, feeding into inflation and policy uncertainty, while also increasing input costs for corporates. More broadly, the bloc’s reliance on imported energy leaves it exposed to external shocks, with elevated prices weighing on confidence, real incomes and industrial activity. As a result, the recovery is likely to remain gradual, with equity performance sensitive to both the energy complex and the broader geopolitical backdrop.
Japan		The bull case for Japanese equities rests on a structural shift in both corporate behaviour and the macro backdrop. Governance reforms are driving improved capital allocation, higher shareholder returns and a sustained lift in profitability. Japan is moving out of deflation into a more normal nominal growth environment, with rising inflation and wages supporting earnings growth. With valuations still reasonable, there remains scope for a gradual re-rating, underpinning a constructive outlook.
Asia Pacific		The region continues to contribute a disproportionate share of incremental global expansion, with markets supported by strength in the technology and semiconductor cycle. Elsewhere, supply chain reconfiguration continues to direct capital towards key manufacturing hubs. Corporate reforms in several markets are improving capital discipline and shareholder returns, while valuations remain more attractive than those of developed peers. A softer US dollar and greater policy flexibility reinforce the case for a constructive stance despite ongoing geopolitical uncertainties.
Emerging Markets		Conditions across emerging markets remain mixed. Commodity exporters are benefiting from tighter supply and firmer prices, while others continue to face inflationary pressures and political uncertainty. Valuations are generally attractive, particularly in consumption and resource-linked sectors, but currency volatility and sensitivity to global financing conditions remain key risks. A softer US dollar would provide support, though uncertainty around trade and policy direction continues to weigh on confidence. On balance, the opportunity set favours selective rather than broad-based exposure and we currently favour a neutral allocation.

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