The architecture of opportunity in fragility

As the global economy moves from synchronized growth to structural dispersion, precision becomes paramount. Read our Institutional Portfolio Management team’s 2026 outlook on building portfolio resilience in a fragile global system.

At a glance

• The global economy remains intact, but increasingly fragile by design. Growth is being sustained through fiscal support, capital-intensive investment, and technological optimism, extending the cycle while reducing tolerance for policy errors and valuation disappointment.
• The cycle is defined by dispersion, not direction. A pronounced K-shaped bifurcation is emerging. Broad participation has given way to outcomes driven by balance-sheet strength, capital discipline, and earnings durability.
• The US remains robust—but vulnerable to capital-cycle risk. AI investment is powering growth at the top of the economy, but rapid depreciation and narrow investment concentration raise the risk of a future retrenchment if monetization fails to scale.
• Canada is executing through volatility. Improved cost discipline, rising energy volumes, expanded export capacity, and a resilient financial system have reduced sensitivity to commodity price swings, positioning Canada as a source of stability rather than cyclicality.
• Global growth is fragmenting. Japan’s structural reforms, Europe’s sector-level opportunities, and China’s export-led pivot are creating differentiated regional dynamics, with currency and policy divergence becoming more consequential for markets.
• Markets are shifting from breadth to selectivity. Equity returns are increasingly driven by earnings quality and capital efficiency rather than valuation expansion. Leadership is rotating, favouring active management over passive concentration.
• Fixed income has reasserted its role. With yields meaningful and equity volatility elevated, fixed income plays a central role in income replacement, drawdown control, and opportunistic return generation through active credit.
• Alternatives strengthen portfolio architecture. Private income, private growth, private real assets, and absolute return strategies broaden return sources, enhance resilience, and reduce reliance on public-market beta in a fragmented global system.
• The investment challenge is architectural, not predictive. Success in the next phase of the cycle will depend less on forecasting precision and more on disciplined portfolio construction—balancing growth opportunities with resilience against volatility.