Background
During a recent cycle of meetings with current and prospective investment managers, conversations kept returning to a common theme: equity markets appear to be behaving differently than they did historically. This served as a tipping point for us to articulate a thesis that had been brewing in our minds for the better part of 2026 — namely, that structural changes to equity markets have led to return dynamics that are fundamentally different from past market cycles. In this note, we outline what has changed, what it means for prospective relative returns and how investors ought to prepare.
Key takeaways
- We believe the opportunity for public equity managers to generate long-term alpha is increasingly attractive; however, the consistency of that alpha may be more volatile than it once was.
- Capturing active manager outperformance may require more patience and tolerance than it did historically, particularly as active portfolios look more different from increasingly concentrated indices.
- For some investors, diversified index exposure could remain an appropriate path, especially where relative underperformance would be difficult to tolerate over time.
- For investors who seek alpha, we see opportunities to outperform the index over the long term, particularly as more investors throw in the towel on active management. But the path is likely to be uneven and might include periods of significant relative underperformance.
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