Where to invest in Q3 2026

The end of the tax year is a great time to reset and revisit your portfolio’s composition and goals.

You might want to see how the stocks, funds and investment trusts you’re holding have performed, and if you have any of your annual ISA allowance remaining, now is the time to use it up (or lose it).

You can put up to £20,000 into ISAs, including stocks and shares ISAs, during any tax year, and this allowance will reset on 6 April.

The key question, of course, is where to invest your money. With the war in Iran, rising oil prices and potentially spiking inflation likely to have a significant impact on investors in the second quarter of the year, there are clearly some important decisions to be made.

“It’s important to stay invested and not make any irrational decisions, but also to really reassess your portfolio, to make sure you don’t have any unintended risks, and at the same time make sure you have diversified sources of return and risk,” Lisa Wang, head of goals-based solutions for Franklin Templeton Investment Solutions, told MoneyWeek.

We asked Wang and two other professional multi-asset investors for their views on where to invest for Q2 2026, as well as the best ways to protect your money against capital destruction in the wake of the conflict.

Here’s their top tips when considering where to invest for the coming quarter.

Stay invested: try to ignore the negativity

It is always tempting to join the rush to the exits at times of turmoil, as we’ve seen since the outset of the Middle East conflict.

But, as hard as it might sound, it can pay to overlook the short term disruptions, and stick to a disciplined, regular investment plan.

“Take a step back,” says Simon Nichols, lead manager for the BNY Mellon Multi-Asset Balanced fund. “Whenever these geopolitical events happen, we can all get really drawn into the 24 hour news flow. But we’re trying to concentrate on the longer term effects, and trying to avoid permanent diminutions in value, rather than trying to trade around short term tactical noise.”

Selling off can risk your portfolio missing out on key gains in the wake of bad news; so-called ‘relief rallies’.

“Markets tend to over-react in both directions as panic [and relief] set in,” says Nichols.

Selling off during the initial panic runs the risk of missing out on the relief over-reaction on the positive side. That can have damaging repercussions for your portfolio.

In order to strip the emotion out of your investment approach, it can be helpful to set up a regular drip-feeding of investments, possibly even scheduling regular deposits if your investing platform enables them.

That will help you avoid the temptation to try to time the market by selling at the peak or buying at the trough, feats which are notoriously impossible even for professional investors.

Which stock market sectors and regions should you invest in for Q2?

In terms of the sectors that have been, and could be, resilient to further geopolitical turmoil or an extension to the Iran conflict, the obvious contenders are the oil and energy sectors, as well as defence.

But these have already gained in response to the conflict – which may be coming to an end.

Nichols suggests that strong companies in sectors that have been sold off currently present buying opportunities for long-term investors.

“Where we have confidence that those companies, in some of those more affected areas, have got great longer-term business models, those are the areas that perhaps present opportunities in the market,” said Nichols. Sectors like industrials have been hit by the selloff, but according to Nichols there are still structural tailwinds that are favourable for the sector over the long term.

Wang believes that Japan is one region that could see continued returns from equities, largely thanks to ongoing reforms of the country’s stock market that are actively designed to return more capital to shareholders.

“The reform story is still very strong,” said Wang. “We think that governance reforms are going to help drive more share buybacks and dividends, and that’s going to help to increase shareholder return.”

Despite being so hit by the stock selloff following the outset of the Iran war that they were forced to implement stock exchange circuit-breakers, Wang is also bullish about South Korea and Taiwan. Both countries are key producers of some critical semiconductor manufacturing components.

“We were positive on Korea before this,” says Wang. “Now that it’s cheaper, we see it as a buying opportunity.”

Should you invest in bonds for Q2?

Historically, bonds were one of the best defensive assets for your portfolio. But over recent years, where most of the headwinds for stocks have taken the form of inflationary surprises, that hasn’t been the case.

“The thing that really hurts fixed income investors is longer-term inflation,” said Nichols.

Bonds and equities have instead been trading in the same direction as one-another. “We’re seeing that positive correlation between stocks and bonds, because the sell-off has been driven by oil and inflationary expectations,” said Nichols. “They should traditionally start to work again in an environment where it’s not inflationary-driven.”

But are they still worth allocating to in the current environment?

James Klempster, deputy head of multi-asset at Liontrust, believes that government bonds are the best store of value over the long term, despite recent volatility.

“We believe quality government bonds will remain an excellent store of value,” he said. “While inflationary spikes may cause prices to move down, more general risk aversion should lead to demand for these assets. This demand should pull down yields, increasing prices and therefore offering the potential for capital growth in times of risk aversion which is likely to be converse to the short-term performance of equity markets.”

How to protect your portfolio in Q2

In terms of equities that can weather the storm, Wang advocates a focus on ‘quality’ stocks; that is, those with strong earnings, low earnings variability, strong cash flows and good governance.

“These are companies that you know are going to do well, regardless of what happens, unless demand gets really, really destructive,” she said. For her, that means US large cap stocks. “That tends to be a safe-ish asset within risky assets, where there are quality names.”

There is an argument, though, that US stocks are priced higher compared to their global counterparts, and as such potentially have further to fall during a downturn.

Klempster prefers relatively undervalued sectors and regions. These, he says, offer two potential advantages, compared to investing in pricier sectors. The first of these is their potential to be re-valued upwards, which would lead to gains.

“We saw this in the relative performance of the hitherto unloved UK stock market in 2025,” said Klempster.

The second benefit has to do with risk management. “Indices with less ‘good news’ in the price should, all else being equal, have less scope to disappoint than those with a lot of good news in the price,” said Klempster. “As a result, there is an argument that there is less optimism and therefore less potential for over-optimism in the prices of depressed value markets.”

Gold has, in recent history, acted as a bulwark against market downturns. However, the gold price fell 15% between the start of the Iran conflict and 20 March.

Despite structural tailwinds like central bank purchases remaining in play, Wang highlights gold’s volatility as one of its drawbacks in terms of protecting against downturns.

“The other issue [with gold] is that it’s a crowded trade as well,” she said. It could, however, continue to have value as a diversifier within a portfolio.

The halfway point of 2026 is approaching. The first six months have been a rollercoaster, and you may be wondering where to invest your money as we enter Q3.

So far we’ve seen the FTSE 100 and the S&P 500 both hit all-time highs, the largest initial public offering (IPO) in history, and a war in the Middle East that has threatened to send global inflation – and interest rates – skyrocketing.

The resolution of this conflict looks like the key variable going into Q3.

“We… regard at least a partial reopening of the Strait of Hormuz, as indicated by the recent US-Iran agreement, as essential for continued equity market gains,” said Nannette Hechler-Fayd’herbe, EMEA chief investment officer at private bank Lombard Odier.

Should the Strait close again, the resultant increase to inflation expectations could force the Federal Reserve (Fed) to raise US interest rates. That would have negative implications for global markets.

Even if the Strait remains open, there could be further market fallout from the disruption that has already occurred.

“Markets have priced in a lot of the relief from the reopening of the Strait of Hormuz,” Rob Morgan, chief investment analyst at wealth manager Charles Stanley, told MoneyWeek. “They probably haven’t necessarily priced in the complexity of what happens over the next few months and beyond in terms of supply chain disruptions. We’ve had quite a pullback in the oil price, which has surprised a lot of a lot of people and led to a potential suppression of the inflationary impact, but there’s still going to be a restocking cycle.”

Morgan also thinks that the tech sector will be front and centre in investors’ minds through the second half of 2026.

“Most people are going to be exposed to a huge amount of tech in their portfolio, whether that’s through a global tracker or a US tracker,” said Morgan.

The outlook for stocks in H2

Several experts expect the artificial intelligence (AI) theme to keep driving the stock market higher, particularly in the US, during the second half of the year.

“US tech behemoths are continuing to pour billions into AI development,” said Salman Ahmed, global head of macro and strategic asset allocation at Fidelity International. “That immense capex spend is bolstering companies across the value chain, including the industrial enablers that support the building of datacentres and rising energy needs.”

While the US is the headline story once again, other markets have potential.

For example, UK stocks still look undervalued.

Meanwhile, Patrick Brenner, chief investment officer, multi-asset at asset manager Schroders, is positive on UK stocks because they stand to benefit from higher commodity prices: “Their exposure to energy, materials and financials… provide diversification away from the narrow US technology-led rally.”

Emerging markets can also offer tech exposure without the premium valuations that US stocks trade at. Brenner is particularly positive about valuations for Chinese AI stocks as well as the momentum behind Taiwanese tech markets, though he cautions that his approach is “becoming more selective following strong performance in Korea” (a market that has been particularly volatile in recent months).

Could tech IPOs shake up the stock market?

SpaceX’s IPO was warmly received by investors initially, and it could be followed in the second half of 2026 by similar blockbuster debuts from frontier AI model developers Anthropic and OpenAI.

Morgan believes that these could be watershed moments for the AI trade more broadly, given that the disclosures both companies will make ahead of listing will effectively be investors’ first look inside the black box of AI model developers.

“It could have a knock-on effect on sentiment,” said Morgan. “These companies are going to be outlining their growth plans very prescriptively. That will give people a lot more information about the extent of the cycle and how those companies see it.

“What those companies do and say is crucially important, but up to now we haven’t had a huge amount of insight into what they’re seeing, thinking, doing, planning for, beyond borrowing and raising a huge amount of money,” Morgan added.

It’s impossible to predict how this visibility could impact the market, but much of the world’s wealth, particularly in US equities, is currently invested in companies that are expected to be long-term beneficiaries of the AI trade.

The concentration in tech means there is a risk of a big market swing should sentiment fall.

The potential rewards, though, are large – so Morgan believes “it’s all about balance”.

“I wouldn’t advocate leaving [tech] behind or being completely on the other side of the boat,” he said. “It’s about having one foot in that camp and one in the other – which is more value and income-oriented traditional portfolios.”

Safe haven investments for H2

All that considered, it’s clearly a good moment to think about your defensive investments in case the tech rally falters.

Fidelity’s Ahmed recommends rethinking your approach to safe haven investments given how the year has played out so far.

“Heightened geopolitical and fragmentation risks are putting a strain on traditional safe havens, which means investors can’t rely on a single asset to support riskier elements of their portfolio,” he said.

Gold is a good example of how individual safe havens can respond negatively to turbulent times. Despite traditionally being viewed as protection against geopolitical turmoil, the gold price fell following the outbreak of the conflict in Iran, prompting questions as to whether gold is still an effective hedge against inflation.

“Gold has performed surprisingly poorly through the conflict but we remain positive on the commodity, owing to its supportive underlying drivers,” said Ahmed. “It can perform strongly when inflation hurts bonds and serves as a diversifier when correlations between bonds and equities increase.”

Bonds are a more complex proposition. Schroders’s Brenner is broadly cautious about government bonds, though warns that concerns over the inflation risk and the Federal Reserve’s credibility diminish the appeal of US Treasuries. Conversely, he is positive about European (particularly Italian) government bonds.

Why you might want diverse commodity exposure

Given the complex setup for traditional safe havens – gold in particular – a diversified approach to commodities could be worth considering.

“I wouldn’t be singling out any one commodity,” said Charles Stanley’s Morgan. “I think you need a basket, because there’s lots of cycles within each individual commodity… if you took a basket approach, that would work quite well.”

One simple approach to achieving this would be to use a fund like the L&G Multi-Strategy Enhanced Commodities UCITS ETF (SW:ECCH) which invests in various commodities including oil, soft commodities, precious and industrial metals.

“Rather than pick a commodity and a particular holding period, that’s a good diversified way to get some direct commodity exposure into your portfolio, without taking too much commodity-specific risk,” said Morgan.