Time to Be Agile: Why the Age of Passive US Equity Dominance May Be Ending – by Ramsey Crookall

For over a decade, the American equity market has been the natural home for discretionary managers seeking reliable long-term growth. The allure has been undeniable: world-leading innovation, deep capital markets, and a steady stream of outperformance driven by a narrow band of mega-cap technology stocks. Passive exposure—via low-cost index products—has not only been defensible, but often the best option for investors seeking global equity exposure.

But we believe that era is coming to an end.

The American Decade – and Its Limits

In a recent piece from Morgan Stanley entitled “American Exceptionalism”, the US firm highlights just how one-sided equity leadership has become. Since 2010, the US has delivered a 12.5% annualised return compared to just 5.5% for the rest of the world. Over the past five years, the gap has widened further with US equities returning 15% annualised, while global equities excluding the US trailed significantly.

This outperformance has largely been driven by the rise of the so-called “Magnificent Seven”—a group of dominant tech-centric companies (such as Apple, Microsoft, Nvidia and Alphabet) that have collectively contributed over two-thirds of the S&P 500’s returns in the past year. Over the past decade, these seven companies have experienced earnings growth of 15% annually—well above the S&P 493’s mere 4%.

While impressive, this level of concentration should raise eyebrows. Rarely has so much depended on so few. And while passive investment strategies have ridden this wave profitably, the risks of continued reliance on a narrow cohort of companies are rising.

Valuation Risk and the Passive Trap

A key point is the valuation distortion now embedded in US markets. Valuation divergence has widened materially, with the Magnificent Seven commanding nearly twice the forward earnings multiple of the rest of the S&P 500. This differential, while arguably justifiable during a period of ultra-low interest rates, looks increasingly stretched in the face of tightening financial conditions, political instability, and potential regulatory backlash.

Passive investment strategies, by their nature, are market-cap weighted. As a result, they force investors to allocate more capital to what has already done well—irrespective of forward-looking fundamentals. While this worked spectacularly when interest rates were low and earnings growth was scarce, it risks becoming a momentum trap in a regime where mean reversion, dispersion, and valuation discipline matter more.

Why Active Management Matters Now More Than Ever

We believe the coming decade will not mirror the last. Macro conditions are changing. Interest rates are unlikely to return to zero-bound territory. Geopolitical fragmentation is reshaping supply chains and investment flows. Meanwhile, the rest of the world—particularly emerging markets and regions like Japan and Europe—is showing signs of structural improvement.

Against this backdrop, the idea of outsourcing your equity exposure to a passive vehicle feels increasingly outdated. Instead, we would argue for an active, research-led, and globally agile approach to equity investing.

Active management allows us to:

• Avoid crowding and extreme concentration,
• Reallocate capital swiftly when valuations become stretched, and
• Identify underappreciated themes in overlooked geographies and sectors.

Fundamentally, our objective is to allocate capital according to where we identify the most compelling risk-adjusted returns, rather than relying solely on index weightings.

Rethinking US Exposure

This is not to say we are “bearish” on the US. It remains home to many world-class companies and a culture of innovation that is hard to replicate. But we believe the US should no longer be the default, nor should exposure be blindly delivered via a passive wrapper. The opportunity set is simply broader and more nuanced than it has been in years.

The world is entering a phase where regional differentiation, macro sensitivity, and sector rotation will become more meaningful drivers of returns. In such an environment, the role of the active manager is not a luxury—it is a necessity.

Conclusion: The Case for Agility

The past favoured passive equity exposure, particularly in the US. The future, we believe, will reward those who are selective, nimble, and willing to challenge consensus. Our approach reflects this philosophy. It is time to move beyond benchmark obedience and towards active stewardship of capital—where conviction, adaptability, and forward-thinking take precedence.

Passive investing still has a place—but it should no longer be the only solution.