Equity markets have mainly drifted upwards, with rare periods of market rotations.
Additionally, a few stocks have become the largest components of their benchmarks (think about the FAANGs) and the winning strategy was to run those few winners. Momentum drove markets.
Another abnormal feature is the outperformance of mega and large-cap companies over smaller companies in a risk-on environment.
If you believe this market environment will persist, you may choose to stick to passive funds tracking market capitalisation-weighted indices and should ask their active equity fund managers to run their winners.
However, if further volatility and market rotations are expected, investors should consider switching to equally-weighted indices and contrarian active equity managers.
Charles Younes is research manager at FE
