UBS: Why the Era of Passive Investing Is Giving Way to Active Investment According to Hoffmann-Burchardi

After a decade where mega-cap stocks dominated the markets, reinforced by the rise of passive index funds, a paradigm shift is underway. Ulrike Hoffmann-Burchardi, Global Equities Director at UBS Global Wealth Management, explained on Bloomberg Surveillance that the current context favors a return to active investing.

An unprecedented context: the end of mega-cap dominance

Since the 2010s, passive funds have massively invested in the largest capitalizations, leading to an extreme concentration of the market around a few flagship stocks. This dynamic notably benefited American tech giants, which often outperformed the market. However, according to UBS, this trend shows signs of fading. Hoffmann-Burchardi reminds us that while this model generated solid results, it also limited opportunities for investors seeking diversification and attractive valuations.

Markets are no longer as uniform as before. The emergence of new sectoral and geographic trends now offers fertile ground for more selective and dynamic management. This context paves the way for better identification of undervalued stocks or those with high growth potential, which are difficult to capture with traditional ETFs.

Why active investing is regaining ground

Active strategy allows adapting positions to rapid market changes, taking advantage of inefficiencies often ignored by passive funds. Hoffmann-Burchardi highlights that after a decade where growth was driven by a limited number of players, the current environment is more fragmented and volatile, favoring thorough research and stock picking.

Moreover, the high valuations of mega-cap stocks create an increased need for diversification. Active managers can thus exploit less liquid or more cyclical market segments, which can generate better risk-adjusted performance. This evolution is also supported by a growing awareness among investors of the limits of passive investing, notably in terms of exposure and risk control.

What consequences for the French investor?

For the individual investor in France, this trend towards active investing should be considered through their usual vehicles: the PEA, the standard securities account (CTO), and life insurance. The PEA, in particular, offers a favorable tax framework for investing in European stocks. It is therefore relevant to consider active funds or actively managed ETFs eligible for the PEA that target segments underexploited by traditional indices.

Traditional ETFs, such as the MSCI World CW8 ETF or the S&P 500 PEA ETF, remain pillars for diversifying one’s portfolio, but it is now wise to complement them with active funds specialized in small and mid-cap European stocks or in rapidly changing sectors. These strategies can be accessed via multi-support life insurance contracts or directly through a CTO for greater flexibility.

Finally, active investing requires rigorous selection of managers and increased attention to management quality. Platforms like Degiro or Trade Republic now offer easier access to a wide range of active funds, allowing the French investor to effectively diversify their portfolio.

How to integrate active investing into your overall strategy?

It is primarily about balancing exposure between passive and active to benefit from the respective advantages of each approach. Active investing can bring potential outperformance and better risk management, but often at a higher cost. It is therefore recommended not to completely abandon index funds, which remain a solid and low-cost foundation.

Moreover, adopting an active approach implies more regular monitoring of investments, a deep understanding of markets, and the ability to identify emerging trends. Geographic and sectoral diversification becomes essential to reduce volatility, especially in an uncertain economic environment.

A strategic turning point in portfolio management

According to UBS, the current dynamic could mark a new era where active investing regains a central role, particularly in a context where valuations are less uniform and where economic and geopolitical factors require constant adaptation. This evolution is an opportunity for investors ready to adopt a more refined and personalized approach.

French investors, especially those with a medium to long-term horizon, would benefit from reassessing the structure of their portfolios to integrate more actively managed assets, while taking advantage of available tax tools such as the PEA or life insurance. This strategy could favor better risk-adjusted performance in the years to come.

The historical roots of passive dominance and its limits

The rise of passive index funds dates back to the 2000s, driven by the promise of simplified and low-cost management. This approach accelerated during the last decade, notably with the popularization of ETFs, which allowed easy and transparent access to global stock indices. This strategy was particularly effective in a prolonged bull market context, where large caps largely outperformed.

However, this concentration led to a form of bubble in certain segments, with valuations sometimes disconnected from fundamentals. Furthermore, the absence of active management means passive portfolios cannot adapt in real time to economic or geopolitical shocks, thus exposing investors to specific risks. These limits partly explain the renewed interest in more proactive management.

The tactical challenges of active investing in an uncertain environment

In the current context marked by increased volatility and geopolitical uncertainties, active investing offers valuable strategic flexibility. Managers can quickly adjust their positions based on economic signals, regulatory changes, or sectoral developments, which passive funds tied to a fixed index cannot do.

This adaptability is all the more important as economic cycles become shorter and influencing factors multiply. For example, trade tensions, divergent monetary policies, or energy transitions are variables to consider in building and managing an active portfolio. Stock picking then becomes a key tool to identify companies capable of benefiting from these changes.

Outlook: towards enhanced complementarity between active and passive

Rather than a strict opposition between active and passive, the market seems to be evolving towards greater complementarity, where each approach finds its place according to the investor’s objectives and risk profile. Passive investing continues to represent a solid base for broad and low-cost exposure, while active investing provides the finesse needed to optimize performance and manage specific risks.

This trend should encourage diversification not only sectorally and geographically, but also methodologically. Integrating actively managed solutions within a portfolio dominated by passive investments improves resilience and exploits opportunities in less explored segments. Thus, the future of portfolio management could be shaped around an intelligent synergy between these two worlds.

In summary

The past decade was dominated by mega-cap stocks and the growth of passive funds, but the financial landscape is evolving towards greater complexity and fragmentation. Ulrike Hoffmann-Burchardi of UBS Global Wealth Management emphasizes that this context favors a return to active investing, allowing for finer management adapted to the new market realities. For the French investor, this implies rebalancing allocation by integrating more active funds while maintaining a solid passive base. This hybrid approach, supported by rigorous manager selection and increased diversification, represents a strategic opportunity to improve risk-adjusted performance in an uncertain economic environment.