The long-standing “active versus passive” debate is losing relevance as investors confront market concentration, heightened volatility, and the need for more strategic portfolio construction, according to Richard Oldfield, group CEO of Schroders.
While passive index investing has delivered strong returns over the past decade, largely driven by the dominance of US equities, recent market swings and geopolitical shocks have exposed its vulnerabilities. Broad market indices such as the MSCI World Index are heavily concentrated, with almost three quarters made up of US companies and just 10 technology stocks accounting for half that exposure.
Schroders’ latest Global Investor Insights Survey (conducted among 995 professional investors worldwide representing USD 67 trillion in assets) confirms the shift in mindset, with 80 per cent of respondents saying they are more likely to use actively managed strategies in the next 12 months, reflecting a move away from one-size-fits-all market exposure toward more deliberate, diversified investment approaches.
“Investors are increasingly realising that labels like ‘active’ or ‘passive’ matter less than the strategies behind them,” Mr Oldfield said.
“What’s needed now is a deliberate, diversified approach that can adapt to change and anticipate risks.
“Investors now want to build resilience into portfolios, and they’re looking to do it by diversifying across geographies, styles and asset classes. Many are reducing dollar exposure. The use of assets is evolving, and growing appetite for private markets is changing the story.”
Investors are deliberately rebalancing away from heavy US exposure, directing more capital into Europe, Asia and emerging markets to create a broader geographic spread. This diversification is not only about reducing risk, but also about accessing under-owned markets with distinct growth drivers and valuation opportunities.
As sovereign debt burdens swell and bond yields fluctuate the Global Investor Insight Survey found investors seeking steady income are looking to private debt and credit alternatives.
Mr Oldfield said the pivot towards private markets marks a structural shift, with these assets increasingly being used as core portfolio components.
“The choice between active and passive is giving way to a focus on investment style and philosophy,” said Mr Oldfield.
“Rather than tracking an index, investors are looking for anticipatory or contrarian approaches that can position portfolios ahead of change. Value investing and thematic strategies, such as energy transition, healthcare innovation or demographic change, are gaining popularity.”
Rapid advances in AI, distributed ledger technology, and data analytics are redefining what’s possible in portfolio construction. For private investors, these tools enable highly personalised, goal-specific strategies aligned to life events, income needs and risk tolerance.
“For much of the past two decades, markets were driven by macro factors that lifted all boats. In today’s environment, micro factors, like company resilience, valuations and structural trends, are far more important”, Mr Oldfield said.
“The evolution of portfolio construction means the traditional active-versus-passive debate is being replaced by a more nuanced conversation. One centred on strategy, risk management, and the intelligent blending of public and private assets.”
Read the full article here: The old “active vs passive” debate is dead – here’s why
