Why now is the time to stay invested and be active (but not too active!)
Global equity markets have delivered another year of strong performance, extending one of the longest bull runs in history. As valuations rise and market leadership narrows, investors face a more uncertain outlook. Remaining invested, but with a disciplined and balanced approach, may be the most sensible course.
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How long can this unprecedented bull market last?
Global equity investors have enjoyed a remarkable run, with 2025 shaping up to be the third consecutive year of double-digit returns. As the adage goes, equities have continued to climb a wall of worry, rising in 16 of the past 17 years, underscoring the enduring resilience of stock markets in the post-2009 era. This bull market is now the third major secular rally since World War II1, echoing the periods from 1945–1968 and 1982–2000. Unfortunately, if history is any guide, such strength is often followed by weaker long-term returns.
Only four other five-year stretches since 1957 have matched the recent performance of US equities. Each was ultimately followed by either a correction or a regime shift. Today’s elevated valuations suggest that mid-single-digit annualised returns for the S&P 500 over the next five years could be a reasonable base case—still positive, but a sharp deceleration from the 15% gains we've grown accustomed to. However, history rarely repeats itself (although as Mark Twain is credited with saying “it often rhymes”) and the range of potential outcomes is very wide and not necessarily skewed to the left-tail.
Navigating uncertainty: the case for caution and opportunity
This uncertainty lies at the heart of the challenge facing investors today. On one side, risks are easy to enumerate: policy unpredictability in the US, rising global debt levels, frothy valuations, and excessive concentration in AI-linked names, and the Magnificent Seven specifically. However, it’s also undemanding to list out the counter arguments: the global economy is proving resilient, central banks are shifting toward rate cuts, and valuations, while elevated for most equity markets, are not reliable short-term timing tools. In any case, AI-led productivity gains may justify the current valuation premium for the US market. Despite talk of an AI bubble, the current environment feels a long way off the excess of the late 1990s as the popular stocks this time have demonstrated strong and resilient earnings growth.
Given this unusually high level of uncertainty, a middle path would be to remain cautiously invested in equities in the short term but start to adjust positioning away from recent winners. Whilst leadership currently remains with the big tech stocks, recent earnings reactions show that markets are no longer blindly rewarding the tech giants. Even among the Magnificent Seven, performance is diverging, with stock prices responding more to earnings quality and capital allocation than just top-line growth.
Market leadership to broaden out to more than just the Magnificent Seven
The focus on the Magnificent Seven has also hidden the fact that there have been plenty of other ways to make money in global equities in recent years. For example, European banks have performed surprisingly well, and even small caps have recently made a comeback globally alongside emerging markets and value stocks outside of the US. The current preference for cyclicality will probably continue in the short term, particularly with the Fed cutting rates. More broadly, there is also good reason to expect market leadership to broaden out based on stronger earnings from the rest of the market and more attractive valuations elsewhere.A rotation away from recent winners and a broadening in market participation would be healthy and potentially permit the market to continue to march higher, albeit with a different set of leaders. This would also be a much better environment for stock picking. Even now, the gap between winners and losers is high across sectors, regions, and styles whilst the average daily correlation of stock performance with the MSCI ACWI is as low as it has been in the past 25 years.
Source: Schroders, QEP, Refinitiv Datastream. Data to September 2025. Index vs. Stock correlations calculated based on daily index and stock data over calendar months.
Finding the right balance in active management
For investors seeking to capture this evolving landscape, active management offers critical flexibility. However, in a market where dispersion is high and thematic trends still dominate, being too active will also rapidly increase risk, especially for strategies that rely on high conviction but low diversification. One solution is to consider enhanced-index or Core global equity strategies - those that blend the discipline of passive investing with the selective edge of active insight. These strategies focus on tight risk controls while seeking to deliver consistent, incremental excess returns over time. Such managers are less aspirational in their short-term performance expectations due to their approach to risk management. However, the empirical evidence over the past two decades suggests that they benefit from a more consistent outcome, generating incremental excess return over time that exceeds that of more concentrated managers.
Source: eVestment. Schroders. Gross of fee returns as of March 2025. Buckets created using 5-year tracking errors. Universe names in full: eVestment Global Enhanced Equity, eVestment Global All Cap Core Equity, eVestment Global Large Cap Core Equity, eVestment Global All Cap Growth Equity, eVestment Global Large Cap Growth Equity, eVestment Global All Cap Value Equity, eVestment Global Large Cap Value Equity. Funds without any relevant data are omitted. A number of funds have been removed, including Passive/Sector Specific/Thematic and those not managed against MSCI World or MSCI ACWI and its variations, in addition to those without at least 5 years of history. Past performance may not be repeated and offers no guarantee of future results.
The Schroder Global Equity Active UCITS ETF (SAGE LN)2 is an example of just such a solution. This actively managed ETF is based on a strategy with a 25-year track record of consistent outperformance and top-decile peer group performance. A strategy that has helped prove the concept that slow and steady wins the race when it comes to active investing.
In short, whilst it always pays to be cautious after such a strong run of equity performance, calling the top is always fraught with difficulty. Equally strong arguments could be built advocating for both further upside and the start of an extended bear market. One option for investors who want to retain their exposure to global equities would be to lean into active strategies that are nimble enough to exploit today’s nuanced market but not be so concentrated to take on too much stock risk in such a dislocated environment. A thoughtfully constructed active ETF with low tracking error may be exactly the kind of core solution investors need in this environment.
1 Source: Fidelity – It’s possible we’re still in a long-term bull market as at April 2025.
2 Listed on the London Stock Exchange (USD ticker: SAGE LN| GBP ticker: SAEG LN)
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