There are periods in markets when safety feels less like a portfolio strategy and more like a rumour. The start of 2026 feels like one of them. The difficulty isn’t simply that share prices are falling. Markets do that from time to time, and any investor with a little experience understands that drawdowns are part of the bargain. Commodities have fallen hard from recent peaks as recession fears have grown. Housebuilding shares continue to sell off. Technology, having carried so much market optimism, is now being repriced as investors try to work out whether artificial intelligence will create enormous value, destroy it, or do some uncomfortable combination of both. With ISA season investing soon to get underway, many investors are asking a difficult question: is anywhere in the market actually safe? That is the central challenge of ISA season investing in a market where very little feels straightforward.
In this sort of environment, I think it is worth saying something unfashionable: there may be no genuinely safe part of the market at all. There are only assets whose risks are better understood, businesses whose finances are more resilient, and valuations that already discount a fair amount of bad news. Safety, in markets, is rarely the absence of volatility.
Commodities and the illusion of refuge
Commodity markets have once again reminded investors that they are never quite as straightforward as they seem. When recession fears rise, the market quickly begins to question the outlook for industrial demand. Prices that looked robust only weeks earlier suddenly begin to look vulnerable. For investors who had started to treat parts of the commodity complex as a relatively safe haven, this has been an uncomfortable reminder that cyclical assets do not become defensive simply because inflation remains a concern.
That does not mean commodity businesses are uninvestable. Some will still prove highly cash generative and well positioned over time. But it does mean that investors should be careful about mistaking temporary strength for structural safety. Commodity-linked equities remain exposed to the economic cycle, to China, to interest rates, and to geopolitics. A falling share price is not always an opportunity. Sometimes it is simply the market revising its view of what the cycle can support.
Housing shares: weakness, but not all weakness is equal
The housebuilding sector continues to look poor on the screen, which is precisely why opinion is becoming so divided. I own Persimmon (LSE:PSN), Taylor Wimpey (LSE:TW.), Vistry (LSE:VTY) and Michelmersh Brick Holdings (LSE:MBH), and all have sold off sharply this year. Yet the reasons aren’t identical though, and I think investors do themselves a disservice when they speak about “housing” as though it were one homogeneous trade.
Persimmon’s recent results were, in truth, rather respectable. Revenue rose 17% to £3.75 billion, pre-tax profit increased 11% to £397 million, and return on capital employed improved by 60 basis points to 11.7%. More importantly, demand appears healthy and management is continuing to invest for expansion. That doesn’t mean the share price must recover immediately, but it does suggest that the underlying business is functioning rather better than the market mood implies. I continue to hold.
Taylor Wimpey looks less reassuring. The pressure isn’t simply one of sentiment. Earnings have weakened materially, and the decline in net cash matters in a cyclical industry where financial flexibility forms an important part of the investment case. When a company’s earnings power is under pressure and its balance sheet is becoming incrementally less robust, investors are naturally less forgiving.
Vistry is more awkward still. The issue here isn’t merely operational performance but confidence. Markets can tolerate difficulty more easily than they can tolerate ambiguity, and insider selling at a point of pronounced weakness does little to strengthen confidence, however benign the explanation may turn out to be. In a sector already under strain, investors are in no mood to extend the benefit of the doubt.
None of this means the long-term case for UK housing has disappeared. Britain still needs homes. Planning remains constrained. Supply is still tight. Over a long enough period, competent operators with discipline, land and sound finances should do well enough. But cyclical sectors demand selectivity. One can be broadly right about the industry and still own the wrong vehicle.
Technology, AI and the possibility of genuine repricing
Technology is perhaps the most interesting area of all because the market is now wrestling with a more serious question than simple overvaluation. Is this merely a correction after excess enthusiasm, or are we witnessing a more meaningful repricing of future economics?
My suspicion is that it is both. Markets have a habit of overshooting in both directions, and recent weakness may well prove excessive in parts of the sector. But it would be complacent to assume that all existing software and technology businesses will simply absorb artificial intelligence and carry on as before. Over the past two years, the market has often behaved as though AI would create enormous value without asking hard enough questions about where in the value chain that value would accrue, who would capture it, and which incumbents might find their old margins under pressure.
Some businesses will adapt and become stronger. Some will discover that their products are more vulnerable than investors had appreciated. Others may find that what looked like durable pricing power was, in fact, more fragile than assumed. That is not a reason to abandon technology. It is, however, a reason to be more selective and less romantic.
Legal & General and the difference between income and re-rating
On the face of it, there was quite a lot to like. Core operating profit rose, core earnings per share increased by 9%, the dividend was lifted by 2%, and management announced a £1.2 billion buyback. Those aren’t the hallmarks of a business in obvious distress, and yet the shares fell. Why? Because capital strength matters, and the market remains highly sensitive to any sign that the balance sheet is less robust than hoped. The decline in the Solvency II ratio from 232% to 210% is still consistent with a strong capital position in absolute terms, but it was enough to dent confidence in the capital story and, by extension, the simplification narrative.
For long-term income investors, I do not think the thesis is broken. The business still appears capable of generating substantial cash and supporting the dividend. But for those waiting for a sharp re-rating, this was a reminder that the market still does not fully trust the capital story. That is a different proposition altogether. Income and re-rating are not the same thesis, even when investors are fortunate enough to enjoy both.
ISA season investing and the discipline of fresh capital
If that’s the backdrop, the obvious next question is what investors ought to do with fresh ISA capital.
The temptation at this time of year is to become overly active. New allowance becomes available, prices are falling, and one feels compelled to put money to work quickly. I think that instinct is often unhelpful. The first question is not what looks exciting, but what the portfolio actually needs.
Does it require more income? More resilience? More international diversification? More exposure to long-term compounders? Fresh capital is most useful when it improves the structure of the whole portfolio rather than merely adding to whatever appears cheapest or most dramatic in the moment.
The second consideration is valuation against quality. Weak markets produce opportunities, but they also produce a great deal of debris. A lower share price does not automatically create value. Investors need to distinguish between temporary markdowns in good businesses and justified deratings in mediocre ones.
The third is time horizon. ISA capital should ideally be allocated to assets one is prepared to own through discomfort. If a 20% fall in a difficult quarter would destroy conviction, the position may not belong in the ISA in the first place.
What I am doing
For my own part, I’m not retreating into cash and calling it caution, nor am I attempting to identify the precise bottom. I am adding selectively from my watchlist.
I’ve been increasing my exposure to Europe, partly for valuation reasons and partly because portfolio diversification still matters, especially when so much capital remains concentrated in the most obvious corners of the US market. I have also been adding to Experian (LSE:EXPN), which still strikes me as the sort of quality business one is usually grateful to own over a five-year view, even if the market is currently less generous towards data and technology names than it was.
Alongside that, I have added to Alumasc (LSE:ALU) and Concurrent Technologies (LSE:CNC). These are rather different businesses, but both fit the kind of role I want smaller companies to play in the portfolio: specialist operators with scope for sensible compounding if execution remains sound. In uncertain markets, I still think there is merit in owning smaller firms where operational progress, capital discipline and time can do a surprising amount of the heavy lifting.
Where I still see value in the UK market
In the UK market, I remain interested in two broad areas.
The first is small caps for growth. Not indiscriminate small caps, which are often cheap for very good reasons, but businesses with niche leadership, decent returns on capital, sound balance sheets and enough operational substance to emerge from a weak period in stronger shape. These are rarely the easiest shares to own emotionally, but they can be among the most rewarding when bought with patience and discipline.
The second is long-term income anchors. Here I continue to think names such as Legal & General, Chesnara and TP ICAP deserve attention. They are not fashionable. They may not rerate sharply. But they occupy that useful part of the market where cash generation, valuation and shareholder returns can provide a more durable sort of comfort than the market’s passing enthusiasm for whichever story happens to be in vogue.
Final thought
So, is anywhere in the market actually safe?
Not in the absolute sense, no, but perhaps that is the wrong question. The real question as we head into ISA season is not where the market feels safest, but where fresh capital can be placed with the greatest combination of resilience, value and patience.
That rarely means perfection. It means accepting that volatility will remain, that some holdings will disappoint, and that confidence will often feel thinnest just when prices are most reasonable. But for the long-term investor, ISA investing season isn’t a referendum on the next six months. It is an opportunity to improve the shape of the portfolio for the next decade.
For me, ISA season investing is not about finding perfect safety, but about allocating fresh capital to assets I can justify owning through a more difficult market. Viewed that way, the task becomes clearer. One is not looking for immunity from risk, but for businesses and assets that can justify continued ownership when sentiment is weak. In this market, that is probably the closest thing to safety available.