Investir Reaffirms H2 2026 Picks After Solid H1 Returns

At the start of the year, French investment magazine Investir tipped European mid-cap equity funds, emerging market (EM) equity funds, and EM local currency bond funds as its top three asset classes for 2026. Halfway through the year, the publication is sticking with those calls, citing performance data that largely validates the thesis.

EM equity funds were the standout, delivering a 26% gain in the first half. EM local currency debt funds returned a solid 4.9%, one of the best performances among fixed-income categories. European mid-cap funds gained 5.7%, which, while positive, trailed the 8.5% return of the broader European equity fund universe.

Over a five-year horizon, the underperformance is more striking: European mid-cap funds have risen just 5.4%, compared with 38% for their large-cap counterparts. That persistent gap, Investir argues, has left small- and mid-cap valuations historically cheap relative to the market's giants.

Because mid-caps typically command a premium thanks to their nimbler operations and faster earnings growth, the current discount represents what the publication calls an anomaly — and a reason to keep the faith for the second half of 2026.

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The Case for Underperforming European Mid-Caps and Still-Hot EM

The Mid-Cap Discount Story

European mid-cap funds have now spent a full year underperforming large-caps, with the gap widening in 2025. The five-year numbers are stark: a cumulative gain of just 5.4% for mid-caps versus 38% for large-caps. Historically, smaller companies have traded at a premium to their larger rivals, reflecting the expectation of superior growth. Today, they sit at a discount.

Investir’s analysts see this as a value opportunity rather than a permanent shift. The thinking is that if economic conditions stabilise and risk appetite returns, the valuation gap could narrow, potentially delivering above-average returns from current levels. However, the timing of any catch-up remains uncertain; prolonged caution among investors could keep the discount in place for quarters to come.

Emerging Markets: Strong Gains, But No Mention of Risks

EM equities had a stellar first half, up 26%, buoyed by a combination of a weaker US dollar, recovering global trade, and investor appetite for riskier assets. Local currency bonds also did well, returning 4.9%, as higher yields and currency appreciation worked in investors’ favour.

The article does not discuss potential headwinds such as US interest rate policy, geopolitical tensions, or the always-lurking risk of a sudden reversal in EM currencies. For now, Investir’s conviction remains high, but any investor piling in after such a strong run should be aware that past performance is no guarantee of the next six months.

How to Position Your Portfolio for These Picks

  • Review your mid-cap exposure. If you already hold European mid-cap funds, the thesis behind the recommendation is intact. The valuation discount could take time to close, but the data suggest no reason to exit on underperformance alone.
  • Consider European mid-caps as a contrarian entry. For those building positions, the current discount relative to large-caps provides a margin of safety that may limit downside if markets turn choppy.
  • Tread carefully with emerging-market equities. A 26% half-year gain is exceptional and may be difficult to sustain. Only allocate capital you are willing to see fluctuate sharply, and balance it against your overall portfolio risk.
  • Local currency EM debt offers yield, but bring a currency hedge. While 4.9% in six months is healthy, currency movements can quickly erode returns. Consider funds that offer hedged share classes if you want to own the yield without the FX risk.