Time for active managers to shine
David Prosser explains why passive investors should consider investment trusts in 2026.
It’s been quite the year for passive investment funds. Just ask investment platform AJ Bell, which has just published a list of the 15 funds – both open-ended vehicles and investment trusts – that DIY investors have used it to buy this year. All but one of the funds on the list are index trackers of one type or another.
Fair enough. The customer, after all, is always right. Right now, there is clearly an appetite for funds that guarantee to replicate the performance of a given index or market.
However, as we move into 2026, it’s worth at least revisiting that choice. In particular, any investor worried by all the talk about a potential bubble in the technology sector should be concerned about concentration risk. The market cap of the big US tech companies has increased to such an extent that they now dominate the portfolios of passive funds tracking the US market and many global indices. The so-called “Magnificent Seven” tech stocks now account for 33% of the S&P 500 Index.
Introducing more active funds to your holdings will give you access to new opportunities.
David Prosser
Moreover, we continue to live in unpredictable times. From the erratic policies of President Trump to the increasing tensions between Europe and Russia, the market backdrop going into next year feels more uncertain than ever. These are the conditions in which nimble, opportunistic stock pickers – the best active fund managers, in other words – tend to do best. Passive funds, meanwhile, leave investors vulnerable to the inevitable bumps that market turbulence delivers.
Should you abandon passive investment strategies altogether? Not necessarily – index funds often work well as the core holdings in a long-term investment portfolio, though it’s important to ensure you’re getting diversification (rather than, say, investing a third of your money in just seven stocks).
However, introducing more active funds to your holdings will give you access to new opportunities. There’s the possibility of exploiting active fund managers’ skills to navigate volatility in conventional asset classes. There’s also the potential to add other asset classes that come with different risk and return profiles and therefore act as ballast in your portfolio.
Investment trusts, of course, are all actively managed. Indeed, one reason why the sector has faced challenges over the past couple of years is the sheer weight of money flowing into passive funds. But for investors now reconsidering their allocations to passive and active strategies, investment trusts offer a happy hunting ground.
That’s true whether you’re thinking about shaking up your core holdings or looking into other asset classes. With the former, studies of equity-focused funds consistently show that, in the past at least, investment trusts have tended to outperform open-ended funds over longer periods in most geographical markets. Incidentally, the one active fund on the AJ Bell list of most popular funds this year is JPMorgan Global Growth & Income, which aims to outperform the MSCI World Index.
As for options in new asset classes, investment trusts really excel. Their closed-ended structure provides exposure to illiquid and otherwise inaccessible asset classes including real estate, private equity and infrastructure. These alternative asset classes provide plenty of interesting diversification and return opportunities for the year ahead.
The bottom line is that it doesn’t have to be a binary choice between passive and active. But it feels as if, this year, investors have been making that choice. It will be unfortunate if they are now caught out by the tech bubble bursting – or even if they simply miss out on performance generated in other asset classes.
David Prosser
David is former Business Editor of The Independent, Personal Finance Editor of the Daily Express, and Deputy Editor of Money Observer magazine. He writes regularly for the AIC.
