With markets on sky-high valuations and returns extremely concentrated in a few megacap companies, 2026 is set to be challenging for stock pickers and index trackers alike. A new, smarter solution is needed for those who want to stay invested.

The false comfort of index hugging

For the better part of the last two decades, passive investing has worked well for everyday investors. Global markets trended up, led by the US, and retail investors got a piece of that growth via low-cost exchange-traded funds. This strategy, however, has become more challenging to execute as a new reality grips markets in 2026.

Standard index construction is backward-looking by design. Capital flows towards whatever has already succeeded. The bigger a company becomes, the larger its share of the index; the larger its share, the more passive money buys it. This self-reinforcing dynamic was benign when it distributed gains broadly.

Buying a world index tracker today is not a bet on the global economy. It is a wager on whether a few tech companies can keep defying gravity. The top 10 US stocks last year accounted for 40% of the market capitalisation, with 42 AI-related stocks driving 75% of the gains. Five hyperscalers are expected to spend close to US$650 billion this year – greater than the GDP of Singapore. Valuations are hot at 22 times, a level not seen since the dot-com bubble.

The stock-picker’s challenge

If passive indexing is too rigid, traditional active management has proven too fragile. Wall Street likes to celebrate star stock pickers, from Peter Lynch to John Templeton. But almost 90% of active managers perform worse than the index. That underperformance has persisted through recent episodes of volatility and high dispersion, which theoretically should favour the skilled active managers.

Concentration risks are inherent in active strategies. The classic star manager runs a concentrated portfolio of dozens of stocks, each position a high-conviction call. This has been little help in the face of tail risks.

On the upside, a number of value-conscious managers stood aside from AI-related stocks ike Nvidia as its valuation stretched compared to historical averages, only to watch the stock break out as AI development accelerated beyond expectations. On the downside, trade and geopolitical shocks have sparked episodes of indiscriminate sell-offs in markets over the past 12 months. Traditional active portfolios, built around careful bottom-up analysis, had little structural protection against these unlikely outcomes.

Equity Alpha: A Smart Strategy for a New Era

We are living in an era of surprises. A foundational growth portfolio should be broad enough to capture growth wherever it takes place. But it also needs the ability to be selective as “dispersion” rises i.e. the gap between winners and losers widens. These ostensibly contradictory demands are ideal for “smart” alpha strategies, such as Syfe’s newly launched Equity Alpha.

Powered by JPMorgan’s extensive research capabilities, the strategy has the ability to capture growth in thousands of companies. It leverages one of the largest global research platforms in the industry – 360 analysts covering 2,500 stocks worldwide. Their findings about companies, conveyed through a structured ratings system, inform our strategy’s overweights and underweights decisions. This is thoughtful stock selection, executed at scale, enabled by research – the antithesis of “all or nothing” stock picking typical in traditional active.

Together, these small tilts create a meaningful edge. The Equity Alpha portfolio is built with J.P. Morgan’s Research Enhanced Index (REI) active ETFs. The J.P. Morgan REI strategy has generated 10.8% annualised returns over the last eight years and outperformed over 20 years – an exceptional level of consistency that is all the more valuable in uncertain times.

Institutional Investing, Made Available and Accessible

Until recently, strategies of this calibre were not available to most investors. Institutional research, execution at scale, and portfolios that adapt were the preserve of pension funds, endowments, and other large asset managers.

Through Equity Alpha, Singapore investors can access institutional-quality portfolio management without that complexity, with all the necessary rebalancing managed by Syfe’s investment team. This ensures your allocations stay on course and aligned with your objectives as market cycles shift. In an evolving market that demands more of every portfolio decision, where alpha is increasingly hard to earn, that capability matters more than ever.

Read More:

Active vs Passive: Which Investing Strategy Is Right for You? (JPM Active Alpha)