We are pleased to release the Verus 2025 Active Management Environment, which can be accessed with the link below.
What changed for 2025?
- The past year presented an environment of strong economic growth and fairly resilient conditions in terms of the labor market and consumer spending. As inflation continued to move lower, investors began to expect an aggressive rate cutting path. Then, stronger economic data and stickier inflation towards the end of 2024, along with the re-election of President Donald Trump, contributed to expectations for strong economic growth, elevated inflation, and higher interest rate levels in the future.
- All major asset classes outside of long treasuries and local currency emerging market debt finished the 2024 calendar year with positive returns, in continuation of the prior year’s trend of positive performance. While 2024 was a strong year, readers of this document will notice the losses of 2022 having an outsized impact on 3-year returns for equities. Returns were broadly higher among most major asset classes for the 5-, 7-, and 10-year time horizons. Fixed income saw substantial improvements in 3-year returns.
- Lower volatility over the past year has contributed to less manager dispersion, with tighter “ovoids” observed over a three-year lookback period. It has been a very difficult run for active management in U.S. equities. Rising market concentration in the U.S. market has created an environment where outperformance was best achieved by overweighting “magnificent seven” companies, though this is a less common practice for active strategies in an already concentrated market.
- In many active universes, we once again observed a trend that many strategies are outperforming by reducing risk rather than taking additional risk. This effect has been especially true in international equity and fixed income markets. In other asset classes such as U.S. large cap, it has been very difficult for active managers to outperform the benchmark without taking on additional risk.
We hope that the insights from this unique mathematical approach provide a deeper understanding of active manager behavior and assists investors in their selection process. For first-time readers, an introduction to this research and methodological details can be accessed on our website.
We look forward to discussing this research with you.
