Living as we do in an uncertain world, we are all naturally attracted to certainty and confident proclamations. If we go to see a doctor, for example, while we know there will always be some element of uncertainty, what we want to hear is a confident prediction of success. The same is true when it comes to our investment managers. While a confident prediction of the future is appealing, we all know from our day-to-day experience that the future is inherently unpredictable. So, while it makes good year-end headlines to opine on issues such as the future direction of AI stocks, the truth is that even the best-informed investor is fighting the tide of uncertainty. Thankfully there are ways to invest despite this uncertainty, which is handy because the only constant in the world seems to be that the future is uncertain.
The overlapping complex of AI stocks, big tech firms and US indices is a great example of this today and has done a great job of making a lot of active managers look very silly over recent years (somewhat upsettingly, for all the energy that has been poured into managing portfolios over recent years). With tech stocks having a weak December, there is lots of speculation about whether investors should buy the dip or take their profits and run. So, assuming that we can’t or don’t want to try to predict the direction of the sector in the New Year, what can we do instead?
For us, a balanced approach is the key here. An interesting dynamic we have seen in markets recently is a see-saw effect, as competing narratives drive the ebb and flow of markets, underpinned by a structural shift towards passive investing. This has led to a market that favours a barbell approach. By having a foot in the US winners, via the headline indices such as the S&P 500 and technology stocks, paired with a foot in the beneficiaries of US outflows, such as Europe and the emerging world, we can build portfolios that better navigate the twists and turns of the competing narratives.
Similarly, we believe that portfolios need balance between passive and active management. Just like the AI trend, passive investing is arguably an even bigger cyclical market dynamic. The structural flow from active to passive styles over recent years has acted as a tailwind to passive strategies, creating a virtuous circle. Outperformance and lower costs – it’s win-win right? Well, it has been, however the further this runs the greater index concentration it drives and the greater the risks of a painful reversal. Again, this is not something we want to bet heavily on or against. It has run for many years now. It could easily continue through 2026 and beyond and it may never come to a clear head. It may be a trend that ends with a fizzle rather than a pop. So, when we populate this barbell approach with funds, we are using a blend of passive and active styles, tilted towards passive in the most developed markets like the US and towards active in less developed markets like the emerging world and fixed income.
It is through this blend, combined with a mix of active and passive styles paired with select diversifying assets, that we believe we can give our clients the best possible chance of achieving good outcomes on their portfolios over the medium term, without having to know if December’s tech wobble marks the end of the “AI bubble” or just another temporary setback in a longer trend. Ultimately, our approach is rooted in a simple belief: that disciplined diversification and thoughtful balance matter more than bold predictions. By focusing on what we can control, we aim to help our clients stay invested through uncertainty and remain well positioned for whatever the future may bring.
We’d like to take this opportunity to say a huge thank you to all of our clients for their support in 2025. We wish you all a happy and healthy 2026 and a great Christmas and New Year.
