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...