Investing in 2026: interest rates, markets, funds and shares to watch

They discuss where interest rates could be heading in the UK and US, the risks around inflation, government debt and high market valuations, and what this could mean for investors. The episode also explores opportunities across bonds, emerging markets and quality shares, before revealing Hargreaves Lansdown’s funds and shares to watch for 2026, including multi-asset funds and individual stocks.

Use the player icons above to listen on your favourite podcast app, or read the full transcript below.

This podcast isn’t personal advice. If you’re unsure what’s right for you, seek financial advice. Investments can fall as well as rise in value, so you could get back less than you invest.

Full podcast episode transcript

[0:11] Emma Wall: Hello and welcome to the Switch Your Money On podcast from Hargreaves Lansdown. I’m Emma Wall – Chief Investment Strategist.

[0:17] Sarah Coles: And I’m Sarah Coles – Head of Personal Finance. And I should start by saying, ‘Merry Christmas’ to anyone who’s enjoying this podcast as a Christmas treat! And, for anyone who’s losing track of time between Christmas and New Year, we’re also gonna complicate things a bit for other – because, for our final Investment episode of the year, we’re gonna be looking ahead to 2026 and some of the things that are set to impact investments.

So, Emma is also, very excitingly, gonna be revealing the much-anticipated funds and shares to watch, which is always a highlight of the year. But we should start with the bigger picture – and the sort of things that’s set to move the markets.

So, Emma, the hardest question, obviously, gonna come first. Can you sum up what we can expect next year?

[0:54] Emma Wall: In a word, ‘Mixed.’

It’s been an interesting process, putting together the outlook for next year. We started with some of the macro stuff, so let’s start with what we expect from interest rates, for example.

We do expect them to fall through 2026. The market is pricing in one to two cuts of 25 percentage points apiece either side of the pond – so US and UK – which, in theory, should be supportive for equities. So, you’ve seen the positive response, in recent months, to the Fed cutting interest rates – but, that said, the macro picture is far from rosy.

[1:27] Sarah Coles: So, at the risk of dwelling on the negative, can I ask you to take us through that picture?

[1:31] Emma Wall: Starting in the UK, our domestic economy – and we’ll start with inflation.

So, the Office of Budget Responsibility recently upgraded inflation expectations – so they were expected to settle around 2.1% by the end of the year, and that’s been upgraded to 2.5%. So, this is still a downward trend – but, because it is higher than expected, we should expect interest rates to also come down through the year, though not at the velocity that households might hope.

In the US, it’s a little bit more complex – ‘cause inflation continues to moderate, but US policies actually risk over-stimulating an already growing economy. So, what do we mean by this? We mean policies that will boost economic growth – so ‘One Big Beautiful Bill’ – so-called... that drip feeds tax cuts and spending into the system, adding more debt to a country that’s already running a record deficit.

The US economy is not going ‘Dambusters,’ but Trump is keen for it to do better as he heads into mid-term elections next year – and, if you pump too much stimulus into the system – and stoke too much demand – inflation could reignite, and that would be bad news for equities.

[2:34] Sarah Coles: So, I mean, we talk about equities, but we shouldn’t just stop there. So, beyond equities, how do things look?

[2:39] Emma Wall: You’re looking for me to find something positive [laughs] to say, Sarah, and I’m afraid I’m not going to – because, now, we’re talking about currencies – and we’re bullish on neither the pound nor the dollar as we move into 2026.

So, on gold, Goldman Sachs estimates that central banks will target around 20 per cent of reserves in precious metals. So, if you think about what China is currently running in its reserves, it has about 8% in gold – and that, alongside geopolitical uncertainty, is positive for the gold price – although we do not expect returns of this year – or last – to follow in 2026.

[3:10] Sarah Coles: So, there’s gonna be a few difficult things to navigate in this economy – and I suppose it’s at a time when share prices have risen quite considerably.

[3:17] Emma Wall: Indeed – market valuations of the US are far above historical averages. So, if we look at something a little bit complex – let’s use the jargon – but, cyclically adjusted price-earning ratios... both the US and the Global Tech sector are much higher – driven higher by fantastical returns from AI companies, in short – and that means they’re trading at very high valuations compared to history.

We think these AI companies are so-called ‘Price for perfection’ – and this is the idea that each forecast will be perpetually beat. The competitive spending – or CapEX – only increases... of course, past performance is absolutely no guarantee of future returns. But, while we think there are some star players within this sector – and we’ll come onto one of those later – we do think that there is risk that the wider sector is over-valued and, potentially, in bubble territory.

[4:06] Sarah Coles: So, in this kind of environment, what kind of themes should people be looking for?

[4:10] Emma Wall: You’re right to ask that – because I’ve outlined valuation risks, macro risks – you know, policy risks – politician risks also remain in 2026 – and the best way to counter all of these risks and take advantage of the opportunities – which I’m sure will appear – is a well-diversified and tactical investment approach.

So, it’s really important that you have a mix of equities, fixed income – and investors who may not wish to, or have the capacity to create this sort of portfolio mix... we would say look for fund selections that have the breadth and the flexibility – such as volatility-managed multi-asset solutions – or seek professional financial advice.

You should always take the time to understand the potential investment before investing in it – and, when making decisions, investors should consider their goals and attitude to risk, as the themes that we’re about to outline for 2026 might not be [s.l. outright 5:02] for everybody.

[5:03] Sarah Coles: So, in terms, then, of your themes, can you take us through the first one?

[5:06] Emma Wall: So, bond markets, we think, offer opportunities for income now and the potential for total return as yields come down – so that’s those interest rates that we were talking about earlier.

Because of the volatility that we expect in the market, however, investors should take advantage of this market volatility through an active approach. So, picking fund managers with a proven track record – are trading across the market – is changing rhetoric throughout the year – is likely to create opportunities.

We think, in this instance, actively-managed funds are best placed – and I think the potential for opportunity here outweighs the additional cost of an active approach over a passive approach.

We’d say look for funds that can invest in government bonds, corporate bonds, and across different geographies – so you’re really getting that diversification.

[5:50] Sarah Coles: So, I suppose I should ask you about geographies – are there any particular geographies that you’ve got your eye on for next year?

[5:55] Emma Wall: And you’re right to ask – ‘cause, you remember, I said we weren’t particularly bullish on the US dollar, but that does create opportunities for US companies that have revenues outside of the US, but also emerging markets.

So, we think emerging markets offer ongoing opportunities. Tariff policies create opportunities there, as emerging economies shift away from US supply chains to into Asia – and into emerging-market trade routes. I think valuations are reasonably attractive as well – on a relative basis – and emerging markets do offer some much-needed diversification, alongside that kind of crowded US megacap trade.

We also think that there is potential for the Indian market – which hasn’t done very well, actually, in 2025 to rally next year – and, as I said, that dollar weakness can, potentially, provide a tailwind to benefit the broader sector. We should say, however, that emerging markets can be more volatile than developed markets – so investors should be more comfortable with that risk.

[6:48] Sarah Coles: So, then, looking beyond geographies, are there any other themes to watch?

[6:51] Emma Wall: Yes – again, I’m gonna get a bit techy here, now, with you, Sarah – and I’m gonna talk about seams and styles of investing. And one area that we think, actually, has some opportunities into 2026 – and beyond – is the ‘Quality style of investing.’

So, what do we mean by that? We mean companies that have characteristics which could do well regardless of economic backdrops. So, all that macro uncertainty we were talking about... that really affects certain sectors more than others – and quality is reasonably robust and resilient.

This is because they have stable and predictable cashflows and, typically, little to no debt. So, this can include companies in sectors that we might think of as ‘Boring,’ but things like utilities, consumer staples, healthcare, industrials – and it’s a style of investing that has been out of favour in recent years because everybody’s been going for high-growth tech firms, or value-backed buyers to companies – and those have led returns.

So, we really think this is a potential buying opportunity to rebalance portfolios – and, should markets take a down-leg, these companies are likely to hold up better as well.

[7:53] Sarah Coles: It’s always good to hear that this could be a ‘Year for the Boring!’

But, with all of this in mind, I think we should turn our attention to the funds and shares for 2026. So, we should say that we’ve prepared five of each of these.

Now, we’re gonna run through three of them on this podcast – otherwise, we’ll just be here all day – but you can find details of all of them on the HL website, so it’s really well worth going and having a look.

So, we should start with the funds – so, Emma, what’s your first fund to watch?

[8:17] Emma Wall: So, the first fund to watch is Schroder Managed Balanced. Because of the environment we’ve been talking about, we think it makes sense to have investment that’s spread across a range of assets.

So, multi-asset funds are those that blend shares, bonds, and other investments – such as gold – infrastructure, in some instances – and they aim to capture growth when markets rise, whilst offering some shelter when they fall. So, that market environment we were talking about – likely to have volatility and uncertainty... these are well-placed to help manage that.

They can also reduce concentration risk – and the benefit of having a professional management means the portfolio could be rebalanced on your behalf.

Schroder Managed Balanced is a ‘Funder funds,’ we’d call it – which means that the managers mainly invest in other Schroder’s funds, run by specialist teams investing in hundreds of different companies and bonds, worldwide. This creates plenty of diversification across geographies, sectors, and asset classes.

The team tends to favour shares when the economic environment looks positive – and then, in times of stress, they can shift towards the more diversified assets – such as bonds, cash, and alternatives, with the idea of minimising losses.

They also have the flexibility to invest in thematic areas – such as gold – which could provide additional resilience, should that macro uncertainty peak.

We should also note that the managers’ freedom to invest in high-yield bonds, emerging markets, and derivatives does add risk.

[9:36] Sarah Coles: And so, for your second fund, you’re actually going for emerging markets – which is an exciting area to look into.

[9:42] Emma Wall: It is. For all the reasons we talked about earlier, evaluations look appealing relative to peers. You know, the long-term growth story of emerging markets remains intact – and, if that US dollar continues to weaken – which we expect it will... that could be good news for emerging markets.

So, we like JPMorgan emerging markets because it’s run by a really experienced investor in Leon Eidelman – supported by a network of more than 100 investment professionals across nine different countries – and this gives the team real eyes on the ground. So, invest in major countries like India and China, but also in smaller regions which offer different opportunities – such as the Middle East, Turkey, and Mexico.

We should say emerging markets can be volatile and add risk – and so, therefore, we think this fund is best considered within a diversified portfolio – and with a long-term view to 2026 and very much beyond.

[10:30] Sarah Coles: And so, for your final fund, you’ve gone down the bond route.

[10:33] Emma Wall: We have, indeed. The final three of five – we’re doing a bit of podcast clickbait by only revealing three in the podcast – you have to check out the website for all five – but you’re right...

The final one we’re sharing today is Invesco Tactical Bond – and we think bonds do offer opportunities in 2026. They have had a volatile period, and we do expect that to remain – but that’s why we’re going for a portfolio like Invesco Tactical Bond.

You know, we think bonds play an important part of a diversified portfolio – they can offer income, they have defensive qualities – and the potential for stability when equities struggle.

The managers can invest in all types of bonds, which include high-yield and emerging market bonds and derivatives – all of which add risk if used. But the Invesco Tactical Bond Fund aims to offer diversification – so the managers have the freedom to invest across governments, corporates, high yields, emerging markets – and that approach is built on interpreting the wider economic picture – so you don’t have to – and adjusting the portfolio accordingly.

So, they aim to shelter the fund when they see tougher times ahead – and then they seek stronger returns when opportunities arrive.

[11:35] Sarah Coles: We should make it clear – as we always do when we talk about funds – that investing in these funds isn’t right for everyone. So, investors should only invest if the fund’s objectives are aligned with their own – and there’s a specific need for the type of investment that’s being made.

So, investors should understand the specific risks of a fund before they invest – and make sure any new investment forms part of a diversified portfolio.

Once invested, it’s important investors check in on their portfolio from time to time, to make sure investments are still in line with their goals.

So, now we can move onto stocks – but, before I do... again, I’ve got some more exciting things to make clear! So, investing in an individual company isn’t right for everyone – because, if that company fails, you could lose your whole investment. If you can’t afford this, investing in single company might not be right for you.

You should make sure you understand the companies you’re investing in – and their specific risk – and you should also make sure any shares you own are part of a diversified portfolio.

Having said all of that, what’s your first stock, Emma?

[12:23] Emma Wall: So, we’re doing the same here, Sarah... we are revealing three of the five – you have to check out the website to have all five. But the equity team has identified three stocks that they think have potential for outperformance next year and beyond – and the first one is an interesting one... well, they’re all interesting! But it’s Marks and Spencer – which, I’m sure you’ll be aware – and all of our listeners will be aware... it’s had a difficult 2025.

So, a cyberattack, back in April, really impacted performance and crippled online sales in the Fashion, Home, and Beauty – and it meant that there’s a sharp decline in first-half profits. However, operations are set to return to full flow by March – which means there is hope that second-half profits could rebound above last year’s level.

The cyber incident also has kind of sharpened management’s focus – you know, they’ve really taken time to think about what they can do better – and so operational and strategic improvements have been implemented, and we’re pretty optimistic that the group can bounce back stronger.

Underlying trends in the business remain positive – so Food, Fashion, Home, and Beauty continue to capture growing market share from the competition – and that’s the focus on quality, and value, and service – that the management has – really paying off.

The equity team do think that the biggest opportunity, though, is in that Fashion, Home, and Beauty segment. The online journeys and margins aren’t as good as the competition, but big investments are being made to fix this – and, if successful, could deliver a strong uplift in profitability.

So, an expectations reset... we do think the worst is now behind M&S – and it’s sitting at a discount to peers because of the last year – and the valuation does look attractive – and the equity team think there is upside there.

Should say, competition in this sector is fierce – and M&S absolutely needs to nail all of the execution that it’s promised to deliver the expected improvements.

[14:12] Sarah Coles: That’s fabulous. Well, it’s great to know that my new M&S cushions are part of some sort of national movement, ...

[14:16] Emma Wall: [Laughs]

[14:17] Sarah Coles: ...rather than a weird [s.l. outline 14:18]!

[Over speaking 14:18]

[14:18] Emma Wall: You’re a martyr, Sarah – you’re a martyr!

[14:20] Sarah Coles: [Laughs] I like to think that I set the trend and everyone else follows!

So, can I ask [laughs] a little bit about your second stock?

[14:26] Emma Wall: Absolutely.

So, going into a completely different sector here – it’s Novo Nordisk – which is a sort of European poster child for the ongoing revolution in diabetes and obesity treatment. And this is another stock that has had a bad 2025 – so it’s against a backdrop of supply chain challenges, really intense competition, and big pressures on pricing.

There’s actually been four profit warnings, the last 12 months – and that’s driven revenue forecasts into single-digit territory – which is a far cry from the blistering growth that investors have become accustomed to – and sentiment has, very much, been crushed across the market – and the improved yield offers scant consolation for those nursing heavy capital losses. And it should be remembered that yields are not a reliable indicator of future income either.

However, the equity team see enormous opportunities in a market that, now, is a two-horse race. And, while rival Eli Lilly has been gaining the higher ground, Novo’s track record of product development – and recent investment in manufacturing capability – does give grounds for optimism.

There’s regulatory approval still outstanding, so there’s no guarantees – however, better enforcement of a US ban on illegal copies – and the successful launch of Novo’s oral version of its weight-loss treatment in the US – are two potential drivers for an upgraded outlook.

The team think there’s meaningful upside to offer as well, if the new CEO can meet or beat rebased expectations. The company still has some way to go to regain investors’ trust, however – so some volatility should be expected.

[15:54] Sarah Coles: So, your third stock, I think, is one that you teased right at the start of this podcast – and I think, maybe, one that people will be shocked that it wasn’t on the list!

[16:01] Emma Wall: Indeed. This is a bit of a controversial one because it’s NVIDIA.

So, it’s an AI company that has dominated headlines over 2025 – which could leave people asking, ‘Does it have any more to offer?’ – particularly in a sector that, overall, we think is overvalued. But this is one of the things I said, where stock selection is really key – and finding those companies that we do think are the potential winners of the future amongst that kind of bubble.

So, NVIDIA is actually back on the ‘Five to watch.’ Equity team picked it last year – and it survives another year. And they say [laughs], themselves, that they know this call will raise a few eyebrows – given the hype around AI – and they can see, themselves, that there are many players in the space which are commanding valuations that are not sufficiently backed by fundamentals – and kinda riding momentum wave that may not continue – but NVIDIA is one of those companies that they think is compelling in the sector. And, in fact, they say NVIDIA tops the list of the most compelling companies.

You know, it’s the first company that’s hit $5tn-valuation – and so it could be questioned whether its best day’s behind it – but the equity team say they’re not – they don’t think so! They still believe that NVIDIA is a best-in-class outfit – and one of the most attractive ways to gain exposure to the AI theme. However, investors should be aware... if sentiment is spooked – and interest in AI, you know, as a sector slows – no names in the sector will be immune – and so NVIDIA’s share price will likely be affected. So, maintaining a diversified portfolio, as ever, is essential.

Should also say that Matt Britzman – who helped put the ‘Five shares to watch’ together – does own NVIDIA shares.

[17:34] Sarah Coles: That’s great – so some really interesting options in there. And, of course, we will always come back to these during the year to see how they’re getting on.

So, we have covered a lot, so I will keep the stat of the week super-snappy.

So, we’re due a new Fed Chair this year, coming. So, I’ve had a ‘Guess who?’ search through the Chairs of the past – and found some fabulous pictures of Chairs of years gone by.

So, my question is... what have there been more of in the photos on the Fed website?

Is it men in glasses – men smoking pipes – or is it women?

[18:01] Emma Wall: [Laughs] I’m gonna go with ‘Men smoking pipes!’

[18:06] Sarah Coles: [Laughs] I would love that to be the answer!

So, of the 16, it was actually nine of them are men wearing glasses. There was one man smoking a pipe and one woman, of course – just the one woman Chair we’ve had to far.

D’you think there’s any hope of a woman this time round?

[18:21] Emma Wall: Well, I think there’s more hope of women than a man smoking a pipe!

[18:25] Sarah Coles: [Laughs] Or, indeed, a woman smoking a pipe – who knows! [Laughs]

So, that’s all from us this week – but, before we go, we need to remind you this was recorded on December 15th 2025, and all information was correct at the time of recording.

[18:36] Emma Wall: Nothing in this podcast is personal advice, and you should always seek advice if you’re not sure what’s right for you.

Investments – and any income from them – can rise and fall in value, so you could get back less than you invest. Past performance is not a reliable guide to future returns.

[18:50] Sarah Coles: Yes – this is not advice or a recommendation to buy, sell, or hold any investment. No view is given on present, or future value, or price of any investment, and investors should form their own view on any proposed investment.

So, all that’s left is for me to thank our Producer, Elizabeth Hotson.

[19:02] Emma Wall: And thank you, so much, for listening. Merry Christmas – we’ll be back again soon. Goodbye!

[19:06] Sarah Coles: Goodbye!