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Passive investing's blind spots open door to active outperformance

Nishtha Asthana
Structural flaws in passive indices are giving active managers a chance to reclaim their edge.
Passive investing's blind spots open door to active outperformance
Key Points
  • Structural flaws in passive fixed-income and credit benchmarks allow active managers to outperform through credit selection and yield-curve positioning.
  • The dominance of a few mega-cap stocks in major indices exposes passive investors to volatility, making active management crucial.
  • While AI accelerates research, its widespread adoption risks creating a "model monoculture." 

While falling costs and greater accessibility have fuelled widespread adoption of passive vehicles, rigid reliance on market benchmarks can expose investors to hidden structural risks that are often overlooked. These vulnerabilities are particularly pronounced across fixed income, top-heavy equities and complex credit markets, opening up distinct advantages for active approaches.

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