The Importance of Actively Picking Your Active Managers

A Smarter Way to Navigate Market Transitions

For Financial Professional Use Only

Over the past few years, passive investing has reigned supreme, its dominance fueled by an equity bull market with increasingly narrow breadth. Investors with large passive allocations have enjoyed rising exposure to the top 2% of the S&P 500, where performance has been concentrated among mega-cap technology names. But can this environment continue indefinitely? The answer, in our view, is unlikely.

Markets never stay static. Shifts in monetary policy, currency regimes, inflation expectations, and global capital flows often mark major turning points, moments when being active truly matters. We are in one of those moments now. Despite persistent cross-currents, rising yields, shifting trade patterns, and policy uncertainty, growth leadership has remained unusually narrow. Many active managers, positioned for value or small-cap outperformance, have struggled to keep pace with benchmarks dominated by the Magnificent Seven. According to Jefferies, only 22% of active managers have beaten their benchmarks so far this year,¹ the weakest showing in a quarter century.

History suggests that conditions like these do not last. Markets eventually broaden, leadership rotates, and the conditions that favor only a handful of winners fade. When that happens, the opportunity for alpha generation reemerges, but capturing it requires more than simply being “active.”

Most active strategies are designed for a specific type of market environment and tend to falter when that environment shifts. It’s like a broken clock that happens to be right twice a day. True outperformance requires adaptability, the ability to recognize when the drivers of return shift and to reposition accordingly.

That is why our software is designed to give advisers and investors an edge through dynamic adaptability. Pave continuously measures portfolio exposure across 88 risk factors and 55 return drivers, enabling the system to detect when the market’s sensitivity to key forces, such as inflation, the dollar, China, or factor rotations like growth versus value, begins to change. When leadership transitions from one style or sector to another, Pave can adjust to capture the new trend while maintaining disciplined risk management.

This balance of flexibility and structure is what separates a reactive manager from one who can stay ahead of the curve. Performance is not simply about finding the right stocks; it’s about constructing portfolios that can outperform their benchmarks in a risk-controlled way. Our optimization engine identifies the interrelationships among holdings to help mitigate volatility and smooth the ride for your clients, even as market leadership shifts beneath the surface.

We believe the next phase of market leadership will favor the few active managers who are truly dynamic, those equipped to recognize change early and reposition effectively. With Pave, you don’t have to guess which managers those will be. You can measure, monitor, and adapt, systematically positioning client portfolios to thrive as the market evolves.

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For Financial Professional Use Only

1. Tsekova, D., Lee, I., & Bloomberg. (2025, October 17). Rattled wall street on alert after trillion-dollar risk runup. Fortune. https://fortune.com/2025/10/17/rattled-wall-street-bull-market-first-brands-tricolor-midsized-banks/ 

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