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“Successful investing requires a balance between risk and reward. Be cautious, but don’t be afraid to take calculated risks.” — John Neff

Chart of the Day

Good morning!

It’s easy being a passive investor. You buy a low cost index fund, kick up your feet and relax. And over the past many years, the markets have rewarded you for that—for not trying too hard. 

But this year’s chaos has raised questions about whether it’s finally time to embrace active investing. And the case for it looks strong, especially on Monday when President Donald Trump injected fresh upheaval into the markets. Stocks fell (not good), bond yields jumped (very not good), and the U.S. dollar tumbled (uh oh). 

For decades, active investing has floundered behind passive. Last year, too, this trend continued. In U.S. large caps, just 7% of the stock pickers survived and beat their average passive rivals over the past decade through 2024. The picture looks less bleak when considering active mid-and small-cap managers, whose success rate is at 22% and 26%. 

That’s according to Morningstar’s Active/Passive Barometer report, which spans across 9,279 funds that account for about $23 trillion in assets, or about 68% of the U.S. fund market.

Active investing has lagged because it’s been too hard to beat the market’s already exuberant returns – particularly for those who wanted to (or were required to) avoid overweighting their portfolios with superstars like Nvidia. But that trend may be at an inflection point this year as everything is in the red, so it makes sense to buy good companies that can withstand the tariffs and policy whipsaw and generate earnings over the longer-term. 

For example, on Monday, each of the 11 S&P 500 sectors closed down. However, 39 constituents rose in the index. The best example among those is Netflix, which rose 1.5% when the S&P 500 ended down 2.4%. The streaming giant’s strong earnings last week, coupled with its ability to keep viewers hooked even in a tightening macro environment, boosted the stock. (Netflix is also a part of our April Super Granny recommendations.) 

And active might also be a prudent strategy during this mass exodus out of the U.S. into emerging markets and other international stocks, leading investors to bet that the era of U.S. exceptionalism is over. International markets aren’t as transparent, cost more to invest in, and involve currency risk, so picking the winners there is arguably more likely to pay off than simply buying the index.

The best strategy, however, might be to actively invest and combine it with passive in a balancing act. That’s what a lot of investors are looking for these days, according to Bryon Lake, chief transformation officer in Goldman Sachs’ wealth and asset management divisions.

“I like to say it’s not an active versus passive conversation, it’s an active and passive conversation. There’s different market environments, there’s different regions, there’s different timings where maybe active makes more sense or passive makes more sense. A lot of clients that we were talking to over the last year were becoming increasingly concerned with the weighting of the Mag Seven in the primary benchmarks. And even if they felt like those were great companies, the amount of risk that was weighted on those Mag Seven was becoming increasingly concerning,” he said in an interview with Morningstar. 

Maybe this will finally be the year for active investors to shine.

Share your thoughts

What percentage of your portfolio is reserved for active investing and do you expect it to grow? Click here to send us your response.

Here’s what a reader commented

Question: What is the best recession play according to you and why? 

Answer: The energy sector is doing OK because of the reversal of so many insane regulations. Simple things like being able to pipe oil from the well to a distribution center – instead of having to truck it (which is much more expensive, more environmentally unfriendly and less safe). Stopping regulators from blocking lending to energy companies and on and on. The cost of energy production is falling so profit margins should be less impacted by lower prices.

Catch up with FS Insight

Stocks fell under pressure Monday, hurt by China warning of reprisals if nations appease the U.S. and also by the White House’s louder calls to remove Fed Chair Jerome Powell. Thankfully, Polymarket only sees a 20% chance of Powell removal in 2025.  And we wait for the first meaningful trade agreement, which may be India.

Technical

U.S. equities have remained in a fragile period of choppy consolidation lately, and despite SPX being up 5% from the 4/7 intra-day lows of 4835, it certainly doesn’t feel like stocks have been rising lately.

Crypto

We discuss the implications of bitcoin’s continued outperformance relative to equities and the impact of Upexi’s $100 million raise on SOL.

News We’re Following

Breaking News

• Pope Francis lies in state ahead of his funeral, set for Saturday AP

Markets and economy

• Trump Is Laying the Groundwork to Blame Powell for Any Downturn WSJ
• Japanese investors sold $20bn of foreign debt as Trump tariffs shook markets FT
• Pension groups cut back on pioneering private equity investments FT
• As the dollar falters, the world’s central banks tread a tightrope — devalue their currency or not CNBC
• US Bonds Have Never Been Risk-Free, and Never Will Be BBG

Business

• Nomura to buy Macquarie asset management units in its biggest deal since Lehman FT
• Slowdown in tourists coming to the U.S. puts Disney’s theme park magic at risk CNBC
• Retail Inventories Are Rising. Watch the Margins. BR

Politics

• Harvard Is Suing the Trump Administration WSJ
• Education Department Will Resume Collections on Student Loan Debt NYT
• Trump looking at cutting US drug prices to international levels, sources say RT

Overseas

• Trump Shuns Europe, and Its Defense Industry Tries to Capitalize NYT
• India hails progress in trade talks with US SEM

Of Interest 

• Smiley Faces Are In. Animals Are Out. The Politics of Starbucks Cup Doodles. WSJ