The case for an active management comeback in 2025

A perfect storm of geopolitical uncertainties sending global equities into a tailspin and doubts “creeping in” about the ‘Magnificent Seven’ has revived hopes of an active management comeback in 2025.

According to two of Schroders’ equity team, Co-Head of the QEP Investment Team Lukas Kamblevicius and Chief Investment Officer, Equities Alex Tedder, current market conditions call for investors to consider implementing an active management strategy.

“We all know that passive investing is a cost-effective way to gain exposure to equity markets. It tends to work well in a calm, trend-driven market environment,” Kamblevicius said.

“If anything, at the current juncture of markets, investors might want to consider an active approach. Valuation multiples are quite high across all regions, primarily in the US, but equally so in some other pockets of the world.

“Meanwhile, index concentration is increasing across multiple regions and volatility has picked up so far in 2025.

“Combining all those three components together, one would advocate that risk management and an ability to tilt away from more concentrated, more valuation stretched pockets to other portions of the market could be prudent. Looking ahead, we think an active approach will be required to navigate these risks.”

Tedder also indicated that investors of the tech stocks designated as the ‘Magnificent Seven’ (Mag 7) have raised concerns that the short-term hype may have run its course, paving the way for a return to bottom-up stock picking to generate returns.

“The Mag 7 are not a homogenous group; each operate very differently, have different product sets and different priorities. Microsoft is not Apple or Amazon; Google isn’t Meta; Nvidia isn’t Tesla. But the Mag 7 do share one common denominator, which is artificial intelligence (AI),” Tedder said.

“They share a common interest in advancing their platforms through the deployment of generative AI models – essentially revolutionising the process of interaction between humans and computers. Optimism about the implications of this revolution has significantly influenced their stock prices, providing a common performance driver despite the variations in their respective businesses.

“Are [investors] too excited about the AI theme and not thinking about the reality of translating new technology into hard dollars? It’s relevant because doubts are creeping in. The doubts are focused on the idea that these companies are spending a ton on AI, and yet the short-term revenue benefit and profit benefit is actually very limited.

“There is a legitimate concern here. The structural potential from AI is clearly enormous, but actually in the short term, I suspect there’ll be major disappointment at some points. New technologies rarely deploy in a straight line: they take time to build, and there are inevitably speed bumps along the way. I think that may be where we are now.

“A period of consolidation, and possibly some real disappointment later this year if demand for AI infrastructure (semiconductors, network equipment) begins to weaken.”

Tedder also said that, as history suggests, markets will soon reach a point of unsustainable concentration – already sitting at more than 30 per cent of the US market represented by a handful of stocks – and have to “broaden out”.

“I have had some of the big tech names, purely because of conviction in what they do, in the business models and in their ability to sustain growth for quite long periods of time. This has played out quite nicely, and from a style standpoint the environment has helped me as these companies have grown very large. Can that environment continue? Based on history, almost certainly not,” Tedder said.

“Those very large companies, as a group, have done relatively less well. Some of them may continue to power ahead, but the law of large numbers dictates that others will struggle to sustain growth and may even begin to decline.

“Given that many areas of the equity market have been neglected amidst the euphoria around the AI revolution, a broadening out is an opportunity for active managers.”