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According to Bloomberg, 2025 was a record-breaking year for the $13 trillion US exchange traded fund industry (ETFs). A staggering $ 1.4 trillion was invested and at the same time more than 1,000 new products entered the market.

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There are both passive and active ETFs. Passives are probably better known by investors and usually the type that track an index. In this way they provide access to a widely diversified portfolio at minimal cost. It’s no secret that there are many poorly performing active fund managers, some of which hold so many shares in their funds, they might as well be a tracker and save the investor money.  

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Other passives might target specific strategies such as only investing in value or growth companies, or maybe certain sectors such as AI or defence. Then there are actively managed ETFs that will mirror open-ended funds such as unit trusts in the UK and have the advantage of inter-day pricing rather than one price set daily. ETFs can also be broken down into those that buy physical assets within their fund and others that are synthetic and best to be avoided due to counter party risk.

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Should we be concerned about this increasing trend? Whilst cheap access to markets is to be applauded, most passives channel monies to companies based on market capitalisation, which means you are buying every company in an index, or whatever criteria the ETF determines, based on a company’s size, not whether it’s a good company to own. And as more money flows into these structures, the companies within the indices are getting pricier and not necessarily on merit. And this can cause distortions. Further, it appears that a new generation of younger investors have a habit of trading, attempting to time the market and this causes markets to be more volatile.

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We ourselves use index trackers to meet a client need, as well as to keep costs down. We see trackers as a momentum play; you are swept along with the wave of enthusiasm. But if everyone chases these cheap products and causes share prices to rise above their intrinsic value, then we all know what happens next. Traders are notorious for selling as markets fall, which means they fall further.  

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Good conviction active managers, the ones we favour, who only concentrate on a few companies, have the advantage of being selective. They can seek out those companies that are not following trends and can be bought at a fair price. They can exploit market inefficiencies and as they will not have overpaid for them, they should hold their value better if markets swing the other way. The low management fee of a passive could be outweighed by the loss in value on the portfolio if markets fall, particularly if an investor makes the mistake of selling and crystallising their loss.

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As we look back on 2025, I highlight the team at Redwheel, Ian Lance and Nick Purves who have been known to us for a long time.  Many of our clients own one of the two funds they manage, the Global Intrinsic Value fund and Temple Bar Investment Trust. The former seeks to outperform the MSCI World Index which, over 2025, it did handsomely with a return of +37% against +13%* for the index. The investment trust is benchmarked against the FTSE All Share Index and did even better with a return of +45% against +24%*. Both mandates are to seek out companies trading below their intrinsic value.

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Neither fund has a Magnificent 7 company in its top ten holdings. This is what active portfolio management is all about - good stock picking and diversification.

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Wishing you all a Happy New Year.

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Comments by James Scott-Hopkins, Founder, EXE Capital Manageement

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*FE Analytics 02/01/2026, net of underlying manager’s fees and with dividends reinvested. Figures rounded.

The views are those of the author only. The above does not constitute a recommendation to buy specific funds or assets and advice should be sought from your financial advisor as to the appropriateness of this in your portfolio.

The value of investments can fall as well as rise. Past performance is no guarantee of future returns.‍

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