Halfway through 2026, markets are shifting to a more active investment selection. According to T. Rowe Price’s “2026 Midyear Market Outlook,” six of the firm’s eight expectations from the start of the year have proven true—especially those related to fixed income.
T. Rowe Price anticipated fiscal expansion would push government bond yields higher, while credit markets would remain resilient, making selectivity increasingly important. This prediction has largely played out, as government bond yields have faced sustained upward pressure with energy price shocks, fiscal deficits and increased issuance weighed on markets, while credit markets remained broadly resilient. However, tight valuations and emerging dispersion have reinforced the need for disciplined credit selection, according to the report.
“Market leadership is broadening across sectors and geographies,” said David Eiswert, a T. Rowe Price portfolio manager of equity, in a statement. “This creates a richer opportunity set for active investors who can distinguish between capital spending that enhances returns and spending that dilutes them. This is more than market rotation. It’s a shift from concentration to dispersion, and from passive exposure to active selection.”
For more stories like this, sign up for the PLANADVISERdash daily newsletter.
Outlook Mirrors Plan Sponsor Behavior
While T. Rowe Price’s outlook highlighted a move toward a more active investment approach, investors and defined contribution plan decisionmakers are using similar strategies when managing investments.
“We’re seeing advisers and plan sponsors rethink the role of fixed income,” wrote Rene Martel, managing director and head of retirement at PIMCO, in an email to PLANADVISER. “It’s no longer just a defensive allocation. It’s a key driver of retirement outcomes, and an area where active management has historically been able to add value.”
According to PIMCO’s 20th Annual Defined Contribution Consulting Survey, 52% of DC plans advised by institutional consultants already have an income-focused fixed-income option on the core investment menu, compared with 17% of plans advised by aggregators.
“Over the past year, plan sponsors’ openness to both active fixed-income management and private market investments in DC plans has increased meaningfully,” Martel wrote. “Sponsors, historically very fee-conscious, now indicate they’d pay anywhere between 13 to 24 basis points more in fees for an actively managed bond fund if it can deliver above-benchmark returns after fees.”
According to Martel, advisers should keep this in mind as they approach the topic of fees.
“Advisers should frame the conversation on a net-of-fees basis, not simply headline expense ratios,” Martel wrote. “The starting point is recognizing that fees are only one part of the equation. The more important question is what a strategy delivers after fees, in terms of incremental return and, ultimately, participant outcomes.”
Separate data from Alight Solutions’ most recent 401(k) index showed plan participants allocating more heavily into fixed-income investments.
Of 20 trading days in May, 16 saw net flows into fixed income, and most net trading inflows were made into bond funds (60%), with some distribution into emerging markets (15%) and stable value (12%).
The increased focus on fixed income also comes as investors closely watch the Federal Reserve’s interest rate path, which remains a key driver of bond yields and fixed-income returns. The upcoming federal open market committee meeting, scheduled for June 16 and June 17, will be led by new Fed Chair Kevin Warsh, who was confirmed in May.
Private Markets in DC Menus
PIMCO’s survey also found that, in addition to active non-core fixed income, consultants also showed strong interest in adding private markets to asset allocation solutions.
“This isn’t a ‘rush to alternatives.’ Plan sponsors and consultants are being very disciplined in how they approach private markets,” Martel wrote. “A strong focus on liquidity, asset quality and the ability to meet daily participant needs are fundamentally different requirements than traditional institutional investors.”
Every aggregator firm surveyed by PIMCO expects at least some plan sponsors to adopt private market exposure in their TDFs or managed accounts within the next year, an increase from 37% in last year’s study.
Fifty-seven percent of institutional consultants reported similar expectations. Private credit is singled out as a leading candidate, with 91% of aggregators and 52% of consultants ranked private credit among the most likely private assets to be added to DC multi-asset funds in the near term.
“Private markets are a natural evolution of the DC ecosystem, but success will depend on implementing them in a way that reflects the unique needs of DC investors, with a clear focus on outcomes,” Martel wrote.
From January 5 through February 16, PIMCO surveyed 36 consulting and advisory firms that served more than 53,000 clients with aggregated DC assets of more than $10.2 trillion.
