Diversification died a slow death in 2025, strangled by tech giants that refused to share the spotlight. Active equity mutual funds bled nearly $1T last year — their 11th straight year of outflows — while passive ETFs pulled in more than $600B, per Bloomberg Intelligence. In a brutally concentrated market, keeping up meant ditching diversification and riding a megacap tech monoculture.
- 73% of equity mutual funds lagged benchmarks in 2025, the fourth-worst showing since 2007 as narrow market breadth punished diversification.
- Dimensional’s $14B International Small Cap Value fund returned 50%+, avoiding US megacaps with ~1.8K holdings across cyclicals.
The contrarian’s dilemma: While most active managers faltered, a few outliers thrived by going all-in or going abroad. Margie Patel’s Allspring Diversified Capital Builder notched ~20% gains via concentrated bets on Micron Technology and Advanced Micro Devices, openly rejecting closet indexing. VanEck’s Global Resources Fund jumped nearly 40% on energy and metals exposure. As Roundhill Investments’ Dave Mazza put it, underweighting the Magnificent Seven could likely be the cause for underperformance, making the cost of being different painfully high.