Richard Oldfield, group CEO of Schroders, has just released a paper claiming that “the old ‘active vs passive’ debate is dead”. That’s certainly a claim that deserves examination. Oldfield’s points do highlight some market developments that indeed call the whole bipolar debate into question – and that have been evident for some time.
Oldfield points to the “explosion in recent years of passive funds which do not track broad indices”. Anyone dealing with index providers and the stress placed on factor investing will be familiar with this. Furthermore, not only is the use of these in portfolio construction, as Oldfield insists, “distinctly active”; the choice of focus on particular themes, styles, regions, etc., is emphatically an active choice, rather than simple passive tracking of the entire market.
That evolution has happened over years. Oldfield also points to more recent developments, particularly the April 2025 selloff in US stocks triggered by the Trump administration’s “Liberation Day” announcements. As Oldfield notes, “almost three quarters of the MSCI World Index is made up of US companies and just ten stocks, primarily tech, comprise half of that”. Passive investors in world indices, and especially in US indices, are therefore faced with considerable concentration risk.
Oldfield’s analysis does sidestep one of the chief drivers in the active vs passive debate: cost. Passive funds long benefited from the thesis that they were low-cost and simple compared to active strategies, which often did not outperform proportionate to cost. The proposition that no one beats the market over the long term may be perfectly tenable, yet it also recalls another proposition, that in the long term we are all dead. Investors are certainly looking for outperformance in the shorter term and seem to have had no problem accepting the claims of private markets firms – based on oft-challenged data – that they can substantially beat the market. They also seem to have had no problem paying the very high fees of private firms, whatever their complaints about the higher expenses of active management strategies. As Oldfield says, the rise of passive management has been “a story shaped by the investment industry, not necessarily by what’s best for investors”.
This point has particular relevance in the context of secular macroeconomic and geopolitical developments. As Oldfield argues, the past two decades or so enjoyed steady and broadly predictable investment conditions when broad macro factors – such as “low interest rates, abundant liquidity, US exceptionalism” – essentially lifted all boats. With increasing volatility and broader instability in policymaking and all kinds of other areas, micro factors such as companies’ or sectors’ resilience may become far more relevant. Passive investing certainly can’t be guaranteed to deliver stable, low-cost, predictable returns anymore.
