After riding three straight years of double-digit gains across most major indexes, institutional investors are preparing their portfolios for rougher terrain ahead.
A survey of 515 global institutional investors by Natixis Investment Managers, conducted in September and October, reveals widespread anxiety about market conditions in 2026 – with four-fifths of North American participants expecting a correction.
Of the 95 North American institutional investors in the survey – overseeing approximately $6.79 trillion in assets – nearly half assign a 49% probability to a one-digit to two-digit decline next year, while one-fifth see odds of a steeper drop exceeding 20%.
Geopolitical tensions top the worry list. Forty-three percent of North American investors cite geopolitical risk as a major concern, with three-quarters flagging political dysfunction in major markets as a destabilizing force. China remains particularly worrisome, with 57% concerned about potential South China Sea conflict and 66% citing control of rare earth materials as a threat.
Technology valuations are another flashpoint. Concern over an AI-driven bubble has surged to 40%, more than doubling from 25% a year ago. Still, 62% of investors expect information technology to outperform, and 55% remain bullish on the Magnificent 7.
Through an economic lens, 40% of North American investors now see an inflation comeback as a key risk, up from 24% in 2025, with 61% believing tariffs are fueling renewed price pressures. Recession fears have also climbed, jumping from 20% last year to 38% for 2026.
"The outlook on 2026 is clouded for institutional investors," said Dave Goodsell, executive director of the Natixis Center for Investor Insight. "After years of strong returns, risks that once felt distant are more tangible."
Facing these headwinds, institutional money is shifting strategy. Sixty-three percent expect active management to outperform passive approaches next year. Institutional investors are also reshuffling allocations – nearly two-thirds believe a 60-20-20 blend of equities, fixed income, and alternatives will beat the traditional 60-40 stock-bond split.
Focusing on equities, defense stocks lead bullish sentiment at 81%, followed by information technology and energy. Consumer discretionary stocks are in the doghouse, with only 12% of investors expecting it to outperform – a reflection of weaker consumer confidence heading into 2026.
"Institutional investors recognize that 2026 will demand more nuance," said Liana Magner, head of retirement and institutional in the US at Natixis. "Active approaches provide the discipline and insight needed to identify durable opportunities and build greater resilience into portfolios."
Private markets remain attractive, though investors are tightening scrutiny. Forty-five percent plan to increase private debt allocations while 34% are boosting private equity, yet 79% cite overcrowding concerns.
Crypto is also gaining traction. While only 20% of surveyed investors currently hold crypto exposure, 44% now view it as a legitimate opportunity, up from 38% the prior year. Forty-five percent expect to have crypto positions by 2026.
Notably, institutional investors are diversifying geographically, signaling concerns about US market concentration. Sixty percent of North American investors still expect US outperformance, yet 68% anticipate stronger international returns and are increasing allocations to Europe, Asia-Pacific, Latin America, and emerging markets.
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