Momentum and passive investing have dominated performance charts lately, leaving active managers behind. In fact, only two in five actively managed strategies managed to outperform passives in the first half of 2026.
Regional three-year numbers paint a similarly gloomy picture, with only two geographies – Japan and Europe – providing a fertile enough ground for active managers, where the odds of outperforming benchmarks were a bit better than a coin toss.
Yet, investors still choose to buy active funds for the promise of alpha, the returns that the manager can make on top of the benchmark’s beta.
But that isn’t the right choice for Nick McLoughlin, head of UK managed fund solutions and global head of research at HSBC Asset Management, and Jennie Byhun, senior multi-asset investment specialist at the firm.
In HSBC’s World Selection multi-asset range, equity exposure is largely passive and fixed income is where the team takes almost all of its active risk.
“Roughly a quarter of equity managers beat their benchmark in a typical year,” McLoughlin said. “In parts of fixed income, that figure is 60 to 70%.”
That isn’t because equity managers lack skill, he said, but because of how benchmarks work. In a market-cap-weighted equity index, the biggest weights go to the companies the market believes have the strongest future earnings growth, priced in by every buyer and seller in that market, he explained. It's a structure that's hard to beat because, in effect, the whole market has already voted on it.
Fixed income benchmarks work differently. The most heavily indebted issuers get the largest weights: the more debt a company, or a country, issues, the bigger its slice of the index.
“Fixed income benchmarks, by design, are often quite inefficient,” McLoughlin said. Rather than rewarding the strongest balance sheets, they reward the biggest borrowers – arguably the opposite of who an investor would actually want to lend to.
For example, any decision to include or exclude China from a bond benchmark has had a dramatic effect on relative performance in recent years: Chinese bonds have traded broadly sideways while yields have risen and prices have fallen elsewhere.
An index built by a provider that includes China as an emerging market and one built by another that doesn't can show different results because of that single inclusion decision, before any manager has made an active call at all, McLoughlin explained.
Nothing comparable happens in equities: MSCI, FTSE and their peers all hold broadly the same large-cap names, so the choice of index provider makes far less difference to the outcome.
It isn't only about how the index is built, either, according to McLoughlin, but also the number of funds replicating it.
Take US large-cap equities: everyone tracks the S&P 500 and everyone knows its constituents, which makes mispricing harder to find. Meanwhile, a niche fixed income benchmark, such as one covering triple-B-rated emerging market corporate debt, has few trackers. Fewer eyes on the same information leaves more room for a skilled manager to spot value the market has missed.
That is what determines where HSBC uses active managers. In a typical 60% equity allocation, only around 10 percentage points of it is actively managed – roughly 15–20% of the equity sleeve – leaving the rest tracking the index.
The exception within that active slice is systematic, factor-based investing: value, quality, size and low volatility exposures with a long, well-documented history of earning a risk premium.
Fixed income is treated the opposite way. Here, the team leans towards more active, index-aware managers, with the view that the inefficiencies in how bond benchmarks are built leaves more genuine room to add value.
Where the firm doesn't have internal capacity, it resorts to either partnering with banks and QIS houses – institutions that design rules-based, systematic investment strategies, often delivered via derivatives or structured products – to design a bespoke strategy, or using a rules-based exchange-traded fund (ETF).
For example, commodities, where HSBC has no in-house capability, are fulfilled this way: an ETF tracking an appropriate index.
However, McLoughlin was careful to draw a line between that and genuine active management.
“It's not true active management alpha that you're generating there,” he said of the rules-based approach, where the performance is largely predetermined by the index rules, not the product of a manager's judgement calls.
“Some [investment houses] specialise in manager selection. We don't. That's not our core business, so we do not have a great depth of resource on our team to go and find the best third-party active manager within, say, government bonds or equities," McLoughlin concluded.