09/04/2026

Index Investing vs Active Management in a Fuel Crisis

Periods like this — driven by conflict, energy shocks, and inflation — change how markets behave. What works in calm conditions does not always work in disruption.

 

Risks of Index Investing Right Now

Index investing (such as tracking the FTSE 100 or S&P 500) is built on a simple idea: own the whole market and accept average returns.

That works well over long, stable periods. The problem is that crises are not “average”.

  1. You own the winners and the losers

In a fuel shock:

  • Energy firms may rise sharply
  • Airlines, retail, and manufacturing may fall

An index holds all of them. This dilutes gains and increases exposure to weak sectors.

 

  1. Indices are backward-looking

Indices reflect what was large in the past, not what will perform next.

  • Many indices are still heavy in sectors that depend on cheap energy
  • They adjust slowly as the economy changes

This means you may be overexposed to areas that are now under pressure.

 

  1. Concentration risk

Modern indices are often dominated by a small number of large companies.

  • In the S&P 500, a handful of firms drive a large share of returns
  • If those firms are not aligned with the new environment, the whole index suffers

 

  1. Less protection in downturns

Index funds do not adjust for risk:

  • They stay fully invested
  • They do not reduce exposure when conditions worsen

This can lead to larger drawdowns during volatile periods.

 

Why Active Management Becomes More Attractive

Active management is about making choices — what to own, what to avoid, and when.

In a disrupted market, that flexibility becomes more valuable.

 

  1. Ability to focus on winners

An active approach can:

  • Overweight energy producers and infrastructure
  • Increase exposure to renewables and electrification
  • Reduce or avoid transport and consumer sectors

This allows investors to benefit from clear trends rather than average them out.

 

  1. Risk control

Active managers can:

  • Hold cash during uncertainty
  • Reduce exposure to weak sectors
  • Adjust quickly as events change

This can limit losses in unstable markets.

 

  1. Faster response to structural change

The fuel crisis is not just a short-term shock — it is accelerating long-term change.

Active strategies can reposition towards:

  • Energy security
  • Domestic supply chains
  • New technologies

Index funds will only reflect this shift after it has already happened.

 

  1. Exploiting mispricing

Volatile markets often misprice assets:

  • Good companies can fall too far
  • Weak companies can remain overpriced

Active managers aim to take advantage of these gaps.

 

The Trade-Off

It is not one-sided.

Index investing:

  • Lower cost
  • Simple
  • Reliable over long periods

Active management:

  • Higher cost
  • Requires skill
  • Can outperform in periods of disruption

 

Bottom Line

In stable markets, index investing is often hard to beat.

In periods like this — shaped by war, energy shocks, and structural change — the risks of “owning everything” increase.

The argument for active management is simple:
when the gap between winners and losers widens, selection more than allocation matters more.

Without wanting to say we said so, this is why we have set up our clients with a blended mix of both active and passive, (where appropriate), but with oversight. You mitigate the risk of both and benefit from diversification while getting oversight. All at a reasonable cost.

From the desk of Andy Brooks

April 9th, 2026