AOR: A Traditional Strategy Works

In an era where passive investing dominates and market efficiency often seems unassailable, the relevance of active ownership strategies (AOR) has been called into question. Yet, as low-alpha environments persist-marked by moderate forward returns, high concentration risks, and structural shifts in liquidity dynamics-AOR is proving its mettle. This article re-evaluates the effectiveness of active ownership strategies through the lens of recent academic and industry research, arguing that these time-tested approaches remain vital tools for investors seeking to navigate today's complex markets.

Active Ownership in Low-Alpha Markets: A Niche for Alpha

Low-alpha environments, characterized by narrow market returns and reduced diversification, create fertile ground for active strategies. Passive investing's dominance has led to rising stock correlations and liquidity risks, eroding the benefits of traditional diversification. In such contexts, active ownership strategies-particularly those targeting inefficient markets like small-cap equities-can exploit mispricings and volatility to generate superior risk-adjusted returns. For instance, small-cap stocks often suffer from limited analyst coverage and fragmented data, creating opportunities for skilled managers to identify undervalued assets.

The Alpha Enhanced approach, which blends passive cost-efficiency with active risk management, has emerged as a compelling solution. By making selective, diversified active bets within pre-set tracking-error limits, these strategies aim to capture alpha while maintaining a benchmark-like structure. This method is especially effective in fragmented markets, where alternative data and systematic models enable the identification of idiosyncratic returns without significant active risk.

Systematic and Quantitative Strategies: The New Frontier

Quantitative strategies are redefining the landscape of active ownership. These data-driven approaches allow for dynamic adaptation to shifting market conditions, such as factor rotations or geopolitical shocks, while maintaining disciplined risk control. For example, systematic rebalancing and exclusion of low-quality stocks can mitigate the liquidity risks associated with passive index-linked behaviors.

The 2025 U.S. Alternative Investment Industry Report underscores this trend, noting that institutional investors are increasingly adopting quant-driven strategies in private markets to enhance value creation. Innovations like public-to-private transactions and open-end fund structures reflect a broader shift toward active ownership models that prioritize operational improvements and long-term value generation.

Case Studies: Proven Performance in Practice

Recent case studies highlight the tangible benefits of active ownership strategies. In 2024-2025, private equity funds targeting lower-mid-market segments outperformed public markets during periods of volatility, leveraging active ownership to drive operational efficiencies. Similarly, active ETFs-now accounting for 51% of global ETF launches in 2025- have gained traction for their ability to deliver alpha through smart-beta screening and structured downside protection.

However, performance metrics reveal a mixed picture. As of mid-2025, only 33% of active funds outperformed their passive benchmarks, underscoring the challenges of consistent outperformance in volatile markets. Yet, this statistic masks the success of niche strategies, such as high-quality fixed-income allocations and covered call ETFs, which have thrived in higher interest rate environments.

Challenges and Considerations

Active ownership is not without its hurdles. The efficient market hypothesis suggests that market efficiency inherently limits the ability of active managers to outperform after fees. Moreover, macroeconomic uncertainties-such as trade-related dislocations and policy shifts- require agile strategies to adapt quickly. Investors must also weigh the trade-offs between active risk and reward, as even well-structured strategies can falter during extreme market stress.

Conclusion: A Strategy for the New Normal

While the low-alpha environment presents challenges, active ownership strategies remain indispensable for investors seeking to differentiate performance. By leveraging systematic approaches, alternative data, and disciplined risk management, AOR can navigate inefficiencies and capture alpha in ways that passive strategies cannot. As markets evolve, the key lies in refining these strategies to align with the realities of a world where traditional paradigms no longer suffice.