Edmond de Rothschild Asset Management presented its investment outlook for 2026 at a media event last week, looking at the macroeconomic outlook and asset allocation, highlighting a preference for European small caps, US healthcare, and emerging market debt.

At a media event last week, Benjamin Melman, chief investment officer Paris-headquartered Edmond de Rothschild Asset Management, showed a preference for European small caps and neglected sectors such as US healthcare.

"We are starting 2026 with cautious optimism: we reject the comfort of consensus and bubbles. Markets remain expensive, with AI concentrating excesses, but macroeconomic conditions do not justify a massive withdrawal from risk,” Melman said. “We favour a truly diversified allocation between equities and bonds, with a strong bias towards under-held and undervalued assets. Far from going with the flow, our priority is to prepare for the next market regime."

Following the re-rating of the European equity market in 2025, after Germany and the EU agreed to hike defence spending and make structural changes, Melman believes that this re-rating will continue, so he has a positive stance on European small caps.

Melman believes that it is preferable to increase the proportion of under-held and undervalued assets that are already showing signs of recovery. “This is particularly true of European small caps, which will benefit from more domestic growth, the Capital Markets Union and possible European Central Bank (ECB) rate cuts,” he said.

Also at the event, Caroline Gauthier, co-head of equities at Edmond de Rothschild Asset Management, said that 2025 was a year of re-rating for Europe and equities, consequently she has a constructive outlook for European equities in 2026.

However, Paris-headquartered ABN AMRO Investment Solutions, the asset management arm of ABN AMRO, is overweight in US equities, notably tech, and believes that the European Central Bank does not appear ready to cut interest rates anytime soon. See here.

With regard to the US, Melman does not think that a recession is in sight, but investors should be wary of insufficient energy supply in the face of rapidly rising demand, leading to soaring electricity prices, and challenges in the private credit market. According to some projections, the rapid growth of the latter makes it one of the main potential sources of financing for data centres by 2030.

Melman believes that the AI market segment remains highly speculative from a long-term investor's perspective. Third-quarter results confirm a slowdown: US earnings growth is no longer driven primarily by the Magnificent 7 – Alphabet, Amazaon, Apple, Meta, Microsoft, Nvidia and Tesla – which argues for diversification beyond the AI theme alone.

Overall, Melman believes that markets remain expensive, with the likelihood of an AI bubble bursting increasing: the more investment grows, the more doubts about its monetisation intensify. However, macroeconomic factors do not suggest a sustained market downturn at this stage.

Edmond de Rothschild AM said it is entering 2026 with a relatively balanced allocation between equities and bonds. Caution is warranted at the start of the year, pending greater visibility on the US Federal Reserve’s policy stance, with no marked geographical preference for equities.

Melman is cautious on large-cap AI stocks (particularly the MAG7), favouring the big data theme, especially user companies, which are best placed to benefit from AI. He is overweight on big data and European small caps. Like other investment managers, he is positive on US healthcare, which has been a neglected sector and is becoming interesting again. He also believes that the gold rally might not be over. Simon Skinner, head of the global investment team at Orbis Investments, and Kevin Thozet, member of the investment committee at Paris-based asset manager Carmignac, also see opportunities in healthcare. See here.

In the bond universe, Melman pointed to spreads already being historically low, but more tightening remains possible as sovereign credit ratings deteriorate. He favours hybrid financial and corporate debt, mainly issued by investment grade issuers, as well as emerging market debt, which should benefit from the Fed's monetary easing, and finally carry strategies.