Unlike previous years dominated by a single theme, 2026 will require a more nuanced approach. Performance will be driven by a range of factors including country-specific fiscal dynamics, the end of rate-cutting cycles, election outcomes, and beneficiaries of AI capex. Investors must move from a single macro view to a multi-factor differentiation strategy.

Active management is more viable in emerging markets than in the US. The largest EM ETF (EEM) has a high 0.72% expense ratio, the universe of stocks is twice as large as the US, and analyst coverage is sparse. This creates significant opportunities for skilled stock pickers to outperform passive strategies.

Contrary to the growth narrative, the MSCI China index returned just 3.4% over the last decade with over 24% volatility. During the same period, the emerging market ex-China index delivered a higher return of 4.8% with significantly lower volatility (17.5%), highlighting structural headwinds in China for investors.

A powerful EM strategy involves identifying businesses with proven, powerful models from developed markets, like American Tower. Local EM investor bases may not be familiar with the model's potential, creating an opportunity to buy these companies at a displaced valuation before their predictable results drive multiple expansion.

While default risk exists, the more pressing problem for credit investors is a severe supply-demand imbalance. A shortage of new M&A and corporate issuance, combined with massive sideline capital (e.g., $8T in money markets), keeps spreads historically tight and makes finding attractive opportunities the main challenge.

Emerging vs. developed market outperformance typically runs in 7-10 year cycles. The current 14-year cycle of EM underperformance is historically long, suggesting markets are approaching a key inflection point driven by a weakening dollar, cheaper currencies, and accelerating earnings growth off a low base.

While fears of retail investors gambling on venture capital exist, the primary growth in retail alternatives is in yield-oriented strategies like private credit and infrastructure. These products meet the demand for high current income and lower volatility, especially for those in or near retirement, making them a more logical first step.

For the sophisticated custom target-date funds that will be early adopters, private credit is the easiest first step. Unlike private equity, some private credit products can already be marked daily. This operational readiness, combined with liquidity from distributions, makes it the path of least resistance.

BlackRock's CIO of Global Fixed Income argues that unlike equities, fixed income is about consistently getting paid back. The optimal strategy is broad diversification—tilting odds slightly in your favor and repeating it—rather than making concentrated, high-conviction "bravado" bets on specific market segments.