Could the tide be changing from passive to active investing strategies?

By Renee Eagar*

If you are a disciplined investor the way your money is invested matters. And the strategies that helped it grow in the past might not work as well in the future. That’s not a guess; it’s what the latest research shows.

For the past 20 years, markets – especially in the US – tracker funds know as passive investment strategies have delivered strong returns. Many retirement funds tracked those markets using low-cost investments called ETFs. These funds simply follow the index, and for a long time, it has been a winning strategy.

The rapid rise of passive funds

The influx into this strategy particularly in the US has resulted in ETFs holding nearly $12 trillion. That’s about a quarter of their entire investment market. Even in South Africa, passive investing is growing quickly. A few years ago, it made up only a tiny slice of the local market. Today, it’s around 9%. Chances are, some of your money is already invested this way.

That approach worked well in a world where a handful of tech companies drove most of the market’s growth. But markets are changing. The same indices that performed so well are now more concentrated than ever. 

Looking ahead, those big-name shares are expected to deliver much lower returns. The outlook for US equities over the next 10 years is significantly weaker than in the past decade.

The are signs are evident that returns will come from a broader mix of asset classes – emerging markets, bonds, credit, and more. This shift means simply tracking a big index may no longer be enough to grow your wealth the way you need to.

Time for a rethink?

You’re not the only one rethinking things. After years of investors pulling money out of actively managed funds, that trend is slowing down. In fact, we may soon see money flowing into active strategies again. Some of it is already moving, but it’s harder to spot, because many of these flows go into active ETFs.

These are counted as passive on paper, but the strategies underneath are anything but.

That’s why active investing is back in focus. Unlike passive funds, active managers make choices. They don’t just follow the index – they decide which shares, asset classes, sectors, or regions to invest in. 

That flexibility can help them avoid overvalued companies and find better opportunities elsewhere. Especially when returns are no longer concentrated in just a few stocks, this kind of selective approach matters.

Paving a new way forward

According to Investopedia, many active funds have underperformed their benchmarks over the past decade. That’s true, and it’s one reason passive investing gained such a loyal following. But that was then. The investing environment is different now, and it’s changing fast. 

What worked before might not work going forward. That’s why paying attention today can help you avoid surprises later.

Of course, no active manager has consistently beaten the index in recent years. That’s a fact. But the point isn’t to beat the market every year. It’s to give your savings a smoother, more resilient ride – and to adjust when markets change.

That’s why many people are moving toward a combined approach. Using passive funds for broader exposure keeps costs down. Adding some active strategies helps capture opportunities and manage risk when the market environment gets tougher. 

Active ETFs offer a new middle ground: low-cost, but with the ability to respond and adapt.

So, what should you do? Start by reviewing where your money is invested. If most of it is in passive funds, it might be time to rethink whether that’s enough. 

The key is not to stand still; there is a greater need to reconsider all the options. The investing world is shifting and faster than we can keep up with. Small changes to your strategy today could make a big difference to your wealth over time and particularly over the longer term.

*Renee Eagar, Certified Financial Planner®, is head of Brenthurst Wealth Claremont, Cape Town renee@brenthurstwealth.co.za