4 ETFs and 6 stocks for tougher markets: Where Morgans sees opportunity

Higher interest rates, geopolitical tensions and uncertainty over AI are making markets as tricky to navigate as the rapids of the Snowy River. For Morgans, the response is to adjust the portfolio mix while staying invested.

“We are moving to lock in income this quarter,” writes Investment Strategist Andrew Tang.

In its Spring 2026 Investment Watch, Morgans upgraded fixed income to overweight, trimmed (but retained) its overweight in global shares, and cut property and infrastructure to neutral. Australian equities remain underweight, while alternatives stay overweight.

Higher bond yields are rewarding patience, while continued global growth and strong company earnings support retaining exposure to shares.

Interestingly, the team also highlights four systematic ETFs as passive flows, retail trading and index concentration reshape investment opportunities.

Below, I unpack those allocation shifts, the ETFs and key stock ideas across the sectors Morgans likes right now.

1. Lock in income, move up in quality

The opportunity in bonds comes against a challenging backdrop.

Tang points to falling oil inventories, Brent crude above US$100 a barrel and disrupted flows through the Strait of Hormuz as reasons energy prices could remain elevated through Q4, keeping pressure on inflation and interest rates.

“Long-term borrowing costs have jumped around the world. … We see this as a market adjustment, not financial stress, but the most expensive, rate-sensitive investments carry the most risk,” he writes.

Against that backdrop, Tang favours Australian and global bonds with moderate interest rate sensitivity, capturing higher yields without relying on rates falling. He is also moving up in credit quality.

“We are reducing lower-rated (sub-investment grade) debt in favour of investment-grade issuers, where income is attractive without excessive default risk."

Property and infrastructure face a less favourable comparison as rising real interest rates reduce the value of their long-dated income, prompting Morgans to cut both to neutral.

“The long-term case for power, energy security and data centres is intact, but at today’s yields better value lies elsewhere. We prefer inflation-linked infrastructure over property."

2. Back resilient spending - and look beyond the domestic slowdown

Sticky inflation and higher household costs are creating a tougher environment for Australian companies. Equity Strategist Tom Sartor favours businesses that can withstand consumer pressure or benefit from stronger overseas markets.

Supermarkets fit the first category. Households can postpone furniture purchases or holidays more easily than weekly groceries, supporting Morgans’ upgrade of consumer staples to overweight.

“Major supermarket operators continue to execute well and gain market share despite ongoing cost-of-living pressures,” Sartor writes.

Beyond supermarkets, commodity exporters offer exposure to global demand. Supply constraints, energy security and electrification underpin Morgans’ overweight resources stance.

Morgans are also overweight on travel stocks despite the cautious consumer outlook - depressed valuations and reduced earnings expectations create scope for recovery.

“With earnings forecasts now materially rebased and expectations more realistic, investor focus should shift towards improving booking trends and the pace of recovery."

3. The data-centre boom is keeping US earnings strong

Chief Economist Michael Knox argues data-centre investment remains a powerful support for the US economy.

“What is hard for Australians to appreciate is the enormous scale of that investment and the significant effects it is having on the path of the US economy,” he writes.

Drawing on US Bureau of Economic Analysis figures, Knox highlights investment in equipment and intellectual property - broad categories benefiting from data-centre demand.

Equipment investment grew at an annualised 15.5% in the first quarter of 2026 and 13.4% in the second. Intellectual property investment grew by 15.6% and 9.2% respectively. These figures cover more than data centres alone.

Knox believes data-centre investment is approaching its ceiling, but sustained spending could continue supporting profits.

“Having reached a very high level, investment is likely to remain around its current level. This prosperity may continue for several quarters, allowing US earnings to remain elevated,” he writes.

For Australia, his model puts the appropriate cash rate at 4.95%, reinforcing the challenging rates backdrop.

4. Put the outlook to work: ETFs and stock ideas

Alongside the economic challenges, Morgans sees changes in how markets operate creating opportunities for systematic investing.

Passive flows, retail trading and technological advances can create price dislocations that disciplined, data-driven managers seek to exploit. Rules-based approaches can also help investors build portfolios with different exposures from market-cap indices such as the S&P 500.

“Factor and systematic strategies can deliberately tilt away from that concentration,” the Morgans systematic strategies team writes.

Morgans’ analysis below shows assets in ASX-listed factor and systematic ETFs are growing faster than those in the rest of the equity ETF market.

Its four featured ETFs offer distinct approaches:

• Vanguard Global Value Equity Active ETF (ASX: VVLU): Uses a quantitative, rules-based process to identify global shares trading cheaply relative to measures such as earnings, book value and operating cash flow. It offers a value tilt rather than weighting companies simply by their market size.

• Plato Global Alpha Fund Complex ETF (ASX: PGA1): Led by Dr David Allen, the strategy seeks to outperform its global benchmark through investments spanning value, growth and quality companies. Its proprietary “Red Flags” framework helps identify higher-risk businesses, informing both stocks to avoid and short-selling opportunities.

• Plato Global Shares Income Fund – Active ETF (ASX: PGI2): Led by Dan Pennell, the strategy targets income and total returns above its benchmark through a diversified global share portfolio. It combines systematic stock selection with active dividend harvesting, assessing company value, quality and sentiment while seeking to limit sector and country concentration.

• Vanguard Australian Shares High Yield ETF (ASX: VHY): The popular choice among income investors uses a rules-based process to identify Australian companies that have higher forecast dividends relative to other ASX-listed companies.

The table below compares the funds’ fees, returns and upside/downside capture; how much of their benchmark’s gains they captured in rising months, and how much of its losses they experienced in falling months.

The sector teams also identify six stocks connecting the outlook to company opportunities:

Staples: Woolworths (ASX: WOW) and Coles (ASX: COL) are both rated Accumulate, with targets of $43.50 and $25.40, respectively. Market-share gains support their defensive earnings appeal, although Morgans cautions that valuations appear full.

Travel: Helloworld Travel (ASX: HLO) and Corporate Travel Management (ASX: CTD) are both rated Buy, with targets of $2.24 and $3.06. Improving booking volumes, margins and earnings would provide evidence of recovery.

Data infrastructure: Goodman Group (ASX: GMG) is rated Accumulate with a $33.20 target, providing exposure to physical infrastructure demand. Funding costs remain a key consideration.

Technology: Megaport (ASX: MP1) is rated Buy with a $27 target. Morgans sees selective opportunities following the technology sell-off, while stressing sensitivity to rates.