We are pleased to release the Verus 2026 Active Management Environment, which can be accessed with the link below.
What changed for 2026?
— The past year presented an environment of resilient economic growth, despite general expectations that 2025 would prove to be a slow growth or perhaps recession year for the domestic economy. The labor market weakened materially, although there is evidence that immigration policy and trends may be a contributing factor. Inflation moved lower but appears to be stuck materially above the Fed 2% target, which has led to hesitance amongst the Federal Reserve Open Market Committee to cut rates too quickly.
— All major asset classes outside of high-quality fixed income delivered strong returns, in continuation of a multi-year trend. Readers of this document will observe particularly high returns over the past three years, which also helped lift longer lookback periods.
— In equities, return dispersion over the prior three years was incredibly wide, leading to the tall vertical shape of chart “ovoids”. We suspect incredible volatility across value, growth, and quality styles contributed to extreme performance disparity in certain active manager universes.
— Outside of U.S. large cap equity, this period appears to have been a relatively attractive environment for active management, with many skilled strategies achieving substantial outperformance over benchmarks.
— In this year’s document we observe a limited relationship between risk and return. In most universes, active strategies that took on greater volatility were not obviously rewarded with added performance.
We hope that the insights from this unique mathematical approach provide a deeper understanding of active manager behavior and assists investors in their selection process. For first-time readers, an introduction to this research and methodological details can be accessed on our website.
We look forward to discussing this research with you.