Active Value Management in Volatile Markets: Reassessing Adaptability in a Shifting Macro Landscape

In the past five years, global markets have been battered by a relentless storm of macroeconomic volatility—spiking inflation, erratic interest rate cycles, and geopolitical shocks. These forces have tested the mettle of active value strategies, which traditionally thrive in environments where mispricings are abundant and predictable. Yet, as the BlackRock Investment Institute's 2025 midyear report underscores, the rules of the game have shifted. The erosion of long-term macroeconomic anchors, such as stable inflation expectations and institutional trust, has created a landscape where static factor exposures are no longer sufficient. Investors must now ask: Can active value strategies adapt to this new reality, or are they relics of a bygone era?

The New Macro Regime: Volatility as the Norm

The 2020–2025 period has been defined by structural uncertainty. Geopolitical fragmentation, AI-driven productivity shifts, and the Federal Reserve's struggle to balance inflation control with growth have created a “high-volatility, low-forecastability” environment. For active value managers, this means that traditional benchmarks—such as long-term interest rates or GDP growth trends—are less reliable. Instead, success hinges on the ability to identify sector-specific mispricings and pivot quickly as macroeconomic signals evolve.

BlackRock's analysis reveals that top-performing U.S. equity fund managers since 2020 have generated more alpha than in the prior decade. This is not a coincidence. In a world where static portfolios are dragged down by outdated factor exposures, active managers who rebalance tactically—shifting toward sectors like AI, infrastructure, and short-duration bonds—have outperformed. For example, the median fund manager faced a larger drag from unchanged factor exposures in 2020–2025 compared to 2010–2019, highlighting the necessity of adaptability.

Sector-Specific Opportunities: Where Value Thrives

The key to navigating volatility lies in granularity. Broad macroeconomic assumptions are no longer sufficient; investors must drill down into sector-specific dynamics. The BlackRock report emphasizes that value strategies have excelled in environments where mispricings are driven by macroeconomic volatility. For instance, U.S. equities tied to AI-driven earnings growth have outperformed, as have short-term Treasuries and inflation-linked bonds. These assets offer liquidity, income, and resilience in a regime where long-term forecasts are unreliable.

J.P. Morgan's midyear outlook further reinforces this point. The firm notes that AI and technology sectors have become central to market dynamics, with AI-related companies leading the S&P 500's rebound. While these sectors are often associated with growth investing, their integration into value strategies—through undervalued AI infrastructure providers or energy-efficient data centers—demonstrates the evolving nature of value investing. Similarly, infrastructure spending, supported by government stimulus and AI-driven demand, has emerged as a durable return driver.

The Role of Active Management: Beyond Static Portfolios

The data is clear: passive strategies are increasingly ill-suited to a volatile macro landscape. The BlackRock report highlights that the median fund manager's returns were dragged down by unchanged factor exposures, while top performers leveraged active risk-taking to capitalize on shifting conditions. This underscores a critical insight: active management is not just about stock-picking but about dynamic portfolio construction.

For example, during periods of rising interest rates, active managers can tilt toward sectors with short-duration cash flows (e.g., utilities, consumer staples) while hedging against rate-sensitive assets. Conversely, in a low-rate environment, they can overweight long-duration sectors like industrials or technology. This adaptability is what separates successful active strategies from their passive counterparts.

Investment Advice: Navigating the New Normal

For investors seeking to harness active value strategies in volatile markets, the following principles are essential:

1. Sector Granularity: Avoid broad macroeconomic bets. Instead, focus on sectors with durable cash flows and low sensitivity to macro shifts, such as AI infrastructure, renewable energy, and healthcare.
2. Tactical Rebalancing: Regularly reassess portfolio exposures to align with evolving macro signals. For instance, if inflation shows signs of reacceleration, increase allocations to inflation-linked bonds or commodities.
3. Liquidity Prioritization: In uncertain environments, liquidity is king. Favor assets that can be quickly converted to cash without significant price erosion, such as short-term Treasuries or high-quality corporate bonds.
4. Diversification Across Asset Classes: Combine equities with alternative assets like private equity or real estate to hedge against market-specific risks. The McKinsey Global Private Markets Report 2025 notes that private equity has historically outperformed public markets during volatility, offering a compelling diversification tool.

Conclusion: The Future of Active Value Investing

The 2020–2025 period has irrevocably altered the investment landscape. Active value strategies, once criticized for their reliance on long-term macroeconomic trends, have proven their mettle by adapting to a world of structural uncertainty. The key to their success lies in sector-specific agility, tactical rebalancing, and a willingness to embrace non-traditional assets like AI-driven equities or inflation-linked bonds.

For investors, the takeaway is clear: in a volatile macro environment, passive complacency is a liability. The future belongs to those who can navigate the storm with precision, adaptability, and a relentless focus on value creation. As the BlackRock report concludes, the new normal demands a reimagining of value investing—not as a rigid framework, but as a dynamic, responsive strategy tailored to the challenges of the 21st century.