November 25, 2025

Active vs Passive in a Changing Market: Why We Don’t Think “Just Own the Market” Is Enough Anymore

Over the past decade, it has often felt as though there was only one sensible answer to the question “How should I invest?” – buy the market cheaply and hold on.

Low-cost index funds (beta) have done extremely well. Central banks kept interest rates close to zero, growth stocks led the way, and global equity indices delivered powerful returns with remarkably few interruptions. Against that backdrop, many active managers came under pressure. If a simple index could deliver such strong performance at a fraction of the cost, why pay more?

We understand that challenge. At Brighton Capital Management we are active multi-asset managers, but we use a blend of direct holdings, active funds and passive instruments. Cost is a crucial part of our process – but it is not the only part. In our view, the next decade is unlikely to look like the last, and that has important implications for the balance between active and passive.

When beta was the hero

For much of the post-financial-crisis period, markets were dominated by a powerful combination:

Ultra-low interest rates
Quantitative easing and abundant liquidity
Modest inflation
A long technology bull market, led by a handful of mega-cap global companies

In that world, simply owning the broad market – “beta” – was incredibly effective. Dispersion between winners and losers was relatively low, monetary policy was highly supportive, and pullbacks tended to be short-lived. Passive strategies were, quite rightly, celebrated for delivering those returns at very low headline cost.

That success story shaped behaviour. Huge sums flowed into index trackers, and cost became the main – sometimes the only – factor driving many investment decisions.

A more dynamic, less forgiving environment

Today, the backdrop is more complicated:

Interest rates are higher than they have been for most of the last fifteen years.
Inflation, while retreating, is more of a live issue.
Geopolitics, trade tensions and industrial policy all play a greater role.
Equity markets in some regions are more concentrated than ever, with a handful of companies driving index returns.
Pockets of the market – speculative technology, parts of crypto, certain “story” stocks – have shown clear boom-and-bust tendencies.

Charts like the ones we’ve been reviewing recently tell the story: non-profitable tech racing ahead of already-expensive indices before correcting sharply; Bitcoin swinging violently while steadier assets such as gold grind higher; broad equity indices trading above their long-run average valuations in aggregate, even as there are more attractive pockets under the surface.

In this kind of environment, a purely passive approach can leave investors heavily exposed to whatever has already done well, regardless of valuation or risk. Beta has done its job – but it can also become fatigued.

The limits of “just track the market”

Passive investing absolutely has a place in sensible portfolios. We use index instruments ourselves where we believe they are the most efficient tool for a particular exposure. But there are limitations:

No assessment of valuation or fundamentals
An index buys more of whatever has gone up the most, and less of what has lagged. When markets become concentrated or speculative, passive investors may end up owning more of the expensive, fragile parts of the market and less of the genuinely attractive opportunities.
No ability to manage bubbles or regime shifts
Passive portfolios have no mechanism to step back from areas of clear excess, or to reallocate as the world changes. They simply follow.
No flexibility across asset classes
Most investors’ exposure to passive strategies is dominated by equities and, increasingly, bond indices. A multi-asset approach – which can move between equities, bonds, cash and real assets – requires more than a single index.
No tailoring to individual objectives
Indices are not designed around your retirement date, cash-flow needs or tolerance for drawdowns. They are simply a representation of a market.

For some investors, those trade-offs are acceptable. For many private clients and trustees with real-world objectives and responsibilities, we think they are less so.

Cost disclosure, MiFID II – and the “fee only” lens

The rise of passive investing has coincided with another powerful trend: the regulatory drive to improve cost transparency for investors, not least under MiFID II.

We fully support the intention behind this – clients should absolutely understand what they are paying and to whom. However, in practice the way costs are bundled and presented can sometimes distort the picture:

Product, platform, advice and transaction costs are often aggregated into a single headline percentage.
More active approaches – which trade more or use specialised instruments – may appear more expensive, even if the net outcome after fees, risk and tax is attractive.
Differences in how costs are calculated or reported between providers can make comparisons difficult.

The danger is that the headline number becomes the only lens through which an investment is judged. Cost matters a great deal – but value after costs matters more.

We think the right question is not “what is the lowest fee I can find?”, but rather:

“For the risks I’m taking, and the objectives I have, is this approach likely to deliver better outcomes after fees and tax than the alternatives?”

Tax: the often-forgotten cost

Alongside explicit charges and fees sits another, often larger, drag on returns: tax.

For UK investors in particular – and especially as we head towards what looks likely to be another tax-raising Budget – tax should be thought of as a core part of the cost equation, not an afterthought. Two portfolios with the same headline fee and the same gross return can deliver very different outcomes once tax is taken into account.

That is why tax efficiency is a central theme in our wider wealth management service. In practice this can involve:

Using the full range of available wrappers – ISAs, pensions and other tax-efficient structures – where appropriate.
Managing the timing and level of realised gains and income, rather than generating unnecessary turnover.
Thinking carefully about where assets are held (“asset location”) so that, for example, more tax-efficient holdings sit in taxable accounts and less efficient ones inside shelters.
Coordinating planning across couples and families to make use of allowances and exemptions.

None of this is about aggressive schemes or clever loopholes; it is about sensible, long-term planning so that more of the investment return accrues to you and your family rather than to the Exchequer.

Seen through that lens, a slightly higher explicit fee for a well-constructed, tax-aware portfolio may be far cheaper in practice than a “low-cost” solution that pays little attention to tax drag.

How we blend active, passive and direct holdings

At Brighton Capital Management we are active allocators first and foremost. That means we decide what risks to take – across regions, sectors and asset classes – and how much of each is appropriate for a given mandate.

To implement those views, we use three main tools:

Passive instruments (index funds and ETFs)
- Used where markets are highly efficient and the case for persistent active outperformance is weak, or
- Where we want broad exposure quickly and at very low cost (for example, to a whole region or style).
Active funds and specialist managers
- Used where we believe there is genuine scope for skilful stock selection, capital allocation or niche expertise to add value after fees and tax.
- Particularly relevant in less efficient areas, or where indices are heavily skewed by a few large constituents.
Direct investments and real assets
- Used where we want more precise control over exposures, tax efficiency or specific themes (for example, certain infrastructure or transition-related assets).

Every decision is made on a cost/benefit basis: we ask whether the additional flexibility, risk management, tax efficiency or alpha potential justifies the extra cost versus a passive alternative. If it doesn’t, we use the passive tool.

Why we think active multi-asset management matters now

Looking ahead, we see several reasons why a thoughtful active approach may matter more, not less:

Greater dispersion – Bigger gaps between the winners and losers at the company, sector and regional level create more scope for selection to add value – and more risk in simply owning the index.
Higher and more variable inflation and interest rates – Different business models and asset classes respond very differently to this environment. Asset allocation and risk control become more important.
Policy and geopolitical uncertainty – Shifts in industrial policy, taxation, regulation and trade can change the investment landscape quickly. A static allocation may not be well suited to that.
Evolving structural themes – AI, energy transition, demographics and defence spending will create long-term winners and losers. Owning “the market” may not be the best way to express those themes.

Our role is to navigate that complexity on behalf of our clients – not by making heroic short-term calls, but by:

Building diversified portfolios aligned with each client’s objectives and risk tolerance.
Deciding where passive exposure is sufficient and where active management adds value.
Managing risk and tax through cycles, not simply tracking indices up and down.

What this means for you

If your portfolio has grown around a core of low-cost index funds – or if you are unsure whether your current mix of active and passive holdings is appropriate for the environment we’ve outlined – it may be worth asking:

Am I comfortable with the concentrations and valuations within the indices I hold?
Is my current balance between equities, bonds, cash and real assets genuinely aligned with my goals – or just copied from a template?
Are decisions being made based solely on fees, or on a considered view of value after costs and tax?

These are not questions a factsheet can answer. They require a holistic view of your finances, time horizon and temperament.

Talk to us

At Brighton Capital Management we act as discretionary multi-asset managers for private investors, families and trustees. Our investment committee is responsible for the hard work behind the scenes – research, manager selection, tax-aware portfolio construction, risk management and the blend of active, passive and direct exposures – so that our clients can focus on living their lives, not watching markets.

If you would like to:

Review the active vs passive balance in your portfolio,
Understand how we think about cost and tax in a MiFID II world, or
Explore how a professionally managed, globally diversified approach might fit your circumstances,

we’d be delighted to have an initial conversation.

👉 If you’re a private investor, trustee or family considering professional portfolio management, please get in touch with the Brighton Capital Management team.

This article is for information only and does not constitute personal advice or a recommendation to buy or sell any security, fund or index. The value of investments can go down as well as up, and you may get back less than you invest. Past performance is not a guide to future returns. If you are unsure as to the suitability of any investment, please seek advice that takes your personal circumstances into account.