A small, tightly linked group of tech super stocks accounted for an outsize share of returns in 2025, extending a pattern in place for the better part of a decade. What stood out wasn’t simply that the winners remained largely the same, but the degree to which the gap started to seriously strain investor patience.

Frustration dictated how money moved. Around $1 trillion was pulled from active equity mutual funds over the year, according to estimates from Bloomberg Intelligence using ICI data, marking an 11th year of net outflows and, by some measures, the steepest of the cycle. By contrast, passive equity exchange-traded funds got more than $600 billion.

The exits happened gradually as the year progressed, with investors reassessing whether to pay for portfolios that looked meaningfully different from the index, only to be forced to live with the consequences when that difference didn’t pay off.

“The concentration makes it harder for active managers to do well,” said Dave Mazza, chief executive officer of Roundhill Investments. “If you do not benchmark weight the Magnificent Seven, then you’re likely taking risk of underperformance.”

Contrary to pundits who thought they saw an environment where stock picking could shine, it was a year in which the cost of deviating from the benchmark remained stubbornly high. 

Narrow Participation

On many days in the first half of the year, fewer than one in five stocks rose alongside the broader market, according to data compiled by BNY Investments. Narrow participation isn’t unusual in itself, but its persistence matters. When gains are repeatedly driven by a tiny few, spreading bets more widely stops helping and starts hurting relative performance.

The same dynamic was visible at the index level. Throughout the year, the S&P 500 outperformed its equal-weighted version, which assigns the same importance to a smallish retailer as it does to Apple Inc. 

For investors assessing active strategies, that translated into a simple arithmetic problem: Choose one that is underweight the largest stocks and risk falling behind, or go with another that holds them in close proportion to the index, and struggle to justify paying for an approach that is little different than a passive fund.

In the US, 73% of equity mutual funds have trailed their benchmarks this year, according BI’s Athanasios Psarofagis, the fourth most in data going back to 2007. The underperformance worsened after the recovery from April’s tariff scare as enthusiasm over artificial intelligence cemented leadership for the tech cohort.

There were exceptions, but they required investors to accept very different risks. One of the most striking came from Dimensional Fund Advisors LP, whose $14 billion International Small Cap Value Portfolio returned just over 50% this year, outpacing not only its benchmark but also the S&P 500 and the Nasdaq 100.

The structure of that portfolio is telling. It holds roughly 1,800 stocks, almost all outside the US, with heavy exposure to financials, industrials and materials. Rather than trying to navigate around the US large-cap index, it largely stepped outside it.

“This year provides a really good lesson,” said Joel Schneider, the firm’s deputy head of portfolio management for North America. “Everyone knows that global diversification makes sense, but it’s really hard to stay disciplined and actually maintain that. Choosing yesterday’s winners is not the right approach.”

Sticking With Winners

One manager who stuck with her convictions was Margie Patel of the Allspring Diversified Capital Builder Fund, which has returned some 20% this year thanks to bets on chipmakers Micron Technology Inc. and Advanced Micro Devices Inc.

“A lot of people like to be closet or quasi indexers. They like to have some exposure in all sectors even if they’re not convinced that they are going to outperform,” Patel said on Bloomberg TV. In contrast, her view is that “the winners are going to stay winners.”

The propensity of big stocks to get bigger made 2025 a banner year for would-be bubble hunters. The Nasdaq 100 trades at more than 30 times earnings and around six times sales, at or near historical highs. Dan Ives, the Wedbush Securities analyst who started an AI-focused ETF (IVES) in 2025 and saw it swell to nearly $1 billion, says valuations like those may test nerves, but are no reason to bail on the theme. 

“There are going to be white-knuckle moments. That just creates the opportunities,” he said in an interview. “We believe this tech bull market goes for another two years. To us, it’s about trying to find who the derivative beneficiaries are, and that’s how we’re going to continue to navigate this fourth industrial revolution from an investing perspective.”

Thematic Investing

Other successes leaned into concentration of a different kind. VanEck’s Global Resources Fundreturned almost 40% this year, benefiting from demand linked to alternative energy, agriculture and base metals. The fund, launched in 2006, owns companies such as Shell Plc, Exxon Mobil Corp. and Barrick Mining Corp., and is run by teams that include geologists and engineers alongside financial analysts. 

“When you are an active manager, it allows you to pursue big themes,” said Shawn Reynolds, who has managed the fund for 15 years, a geologist himself. But that approach, too, demands conviction and tolerance for volatility — qualities that many investors have shown less appetite for after several years of uneven results.

By the end of 2025, the lesson for investors was not that active management had stopped working, nor that the index had solved the market. It was simpler, and more uncomfortable. After another year of concentrated gains, the price of being different remained high, and for many, the willingness to keep paying it had worn thin.

Still, Osman Ali of Goldman Sachs Asset Management believes there is “alpha” to be found not just in Big Tech. The global co-head of quantitative investment strategies relies on the firm’s proprietary model, which ranks and analyzes roughly 15,000 stocks worldwide on a daily basis. The system, built around the team’s investment philosophy, has helped deliver gains of some 40% across its international large-cap, international small-cap and tax-managed funds on a total return basis.

“The markets will always give you something,” he said, “You just have to look in a very dispassionate, data-driven way.”

That threatens to turn the U.S. financial system more fragile in times of market stress, according to Geng Ngarmboonanant, a managing director at JPMorgan and former deputy chief of staff to Treasury Secretary Janet Yellen.

Foreign governments accounted for more than 40% of Treasury holdings in the early 2010s, up from just over 10% in the mid-1990s, he wrote in a New York Times op-ed on Friday. This reliable bloc of investors allowed the U.S. to borrow vast sums at artificially low rates.

“Those easy times are over,” he warned. “Foreign governments now make up less than 15% of the overall Treasury market.”

While they didn’t dump Treasuries and still hold roughly the same amount as 15 years ago, foreign governments didn’t ratchet up their buying in line with the recent surge in U.S. debt, which now tops $38 trillion.

Private investors have stepped in to absorb the massive supply of Treasury bonds, but they are also more likely to demand higher returns, making rates more volatile, Ngarmboonanant pointed out.

The influence of hedge funds, which doubled their presence in the Treasury market in the last four years, raises particular concern among U.S. officials, he added. In fact, the biggest share of U.S. debt that’s held outside the country is now in the Cayman Islands, where many hedge funds are officially based.

Ngarmboonanant attributed “unusual turbulence” during recent shocks in the Treasury market, which has historically been a safe haven during crises, to hedge fund activity. That includes the sudden selloff in the immediate aftermath of President Donald Trump’s shocking “Liberation Day” tariffs.

Relying on AI-fueled productivity gains, stablecoins, Fed rate cuts or inflation to sustain U.S. debt will eventually backfire, he said.

“Financial engineering and false hopes won’t keep America’s lenders happy,” Ngarmboonanant predicted. “Only a credible plan to restrain deficits and control our debt will ultimately do that.”

The ability of bond investors to force lawmakers to change course has earned them the “bond vigilantes” moniker, which was coined by Wall Street veteran Ed Yardeni in the 1980s.

Indeed, upheaval in the bond market after Trump unveiled his global tariffs in April helped convince him to retreat from his most aggressive rates. That prompted economist Nouriel Roubini to say, “the most powerful people in the world are the bond vigilantes.”

But analysts at Piper Sandler recently dismissed the power that bond vigilantes actually have over politicians. 

In an August note, they pointed out that the bond market didn’t prevent federal deficits from exploding and haven’t steered Trump away from continuing to press his overall tariff agenda.

Still, the U.S. debt outlook has become so dire that even longtime Republican Mitt Romney, a former senator and presidential candidate, has called for increasing taxes on the rich as the Social Security Trust Fund races toward insolvency in 2034.

“Today, all of us, including our grandmas, truly are headed for a cliff,” he warned in a recent New York Times op-ed. “Typically, Democrats insist on higher taxes, and Republicans insist on lower spending. But given the magnitude of our national debt as well as the proximity of the cliff, both are necessary.”​

“You cannot teach positive attitudes and engagement and energy,” Sarah Walker tells Fortune. That’s the No. 1 green-flag trait she keeps an eye out for when hiring or looking to promote from within—and she says it outweighs what’s on your resume, especially early in your career. 

The 45-year-old boss spent 25 years climbing the ranks at the Fortune 500 Europe telecommunications giant BT. In that time, Walker went from joining the sales team at the £14.21 billion British ($17.7 billion) legacy brand to leaving as its director of corporate and public sector. Following a micro-retirement, she joined Cisco as managing director before being promoted to lead its U.K. and Ireland arm just two years later. 

Now that she calls the shots, the CEO’s go-to choice for her team is always the upbeat, eager-to-learn worker.

“It’s more about the person first and foremost than it is about skills or experience,” she adds.

Skills become more important with experience—but it always pays to be positive and humble

“I always try and distinguish between the things that can be taught and learnt and the things that are just inherent in somebody,” Walker says, adding that skills become more important as you climb the ladder and enter more specialist roles.

Even then, she says someone with a great attitude and willingness to learn can still bag a role over someone more experienced if they can be developed into the role. 

 “You don’t need to be the finished article to be promoted, but we need to know that you are in a position where within a reasonable timeframe, you’ll have invested the time to upskill and develop—so I say to people, be very focused on who you are first and foremost, because that’s the bit that makes you stand out, and can’t be taught and will be a differentiator,” she adds.

But no matter how junior—or senior—you are, she still thinks a bad attitude will make you stand out for all the wrong reasons.

“I can’t stand arrogance. Be confident, but have a level of humility,” Walker warns. “You can’t rest on your laurels because you’ve done something well in the past, you need to be thinking about what’s the next great thing that you’ll do?”

“Even at my level, you have to be open to the fact that there’s lots more yet to learn and grow and adapt,” she concludes. “I always know that I’m only as good as the last good thing that I’ve done, and I’ll only continue to be good if I continue to do good things.” 

An ’embarrassing’ amount of your success in your 20s depends on your attitude, Jassy echoes

Walker’s not the only CEO to reveal that it’s not a ritzy college degree or being the best networker that will make you stand out at the start of your career—but a positive attitude. Amazon CEO Andy Jassy has said that an “embarrassing amount of how well you do, particularly in your twenties” depends on it.

Even Walker’s predecessor, David Meads previously echoed to Fortune that “EQ is at least as important as IQ.” The now MEA chief at Cisco stressed that he sees “no difference in terms of the capability” from talent with or without a degree while adding that qualifications hold even less weight in external-facing roles.

“You need that EQ to be able to read the room and understand what’s being said by what’s not being said.”

In the end, numerous leaders, including Pret and Kurt Geiger’s CEOs, have stressed that being nice to their boss and coworkers was one of the biggest determining factors in their success.

As Maya Angelou famously said: “People will forget what you said, people will forget what you did, but people will never forget how you made them feel.” And ultimately, the same is true for hiring managers and those with promotion powers.

A version of this story originally published on Fortune.com on January 30, 2025.