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In over two decades of investment management, we have rarely needed to look far to understand why one portfolio outperforms another. Markets move in cycles, styles rotate, and patient investors are typically rewarded. But 2025 and the opening quarter of 2026 in particular, has presented something genuinely different: the widest dispersion of investment returns between managers that I can ever recall. The gap between those who have navigated this environment well and those who have not is substantial, and it carries important implications for clients and their advisors.
The arrival of genuinely capable artificial intelligence agents has not been a gradual evolution, it has been a disruption. For example when leading AI laboratories began releasing autonomous agent capabilities earlier this year, the market’s reaction in the software sector was swift and severe. US-listed software companies (SaaS) saw peak-to-trough drawdowns exceeding -29% in certain segments, as investors reassessed the future revenue streams of businesses built on selling access to tools that AI can now, in many cases, replicate or replace.
SaaS businesses who have long been celebrated for their recurring revenues and sticky customer relationships have found their perceived ‘stickiness’ suddenly in question. If an AI agent can perform the same function at a fraction of the cost, the economics of the entire category shift. This is not a temporary headwind. The pace of AI capability improvement shows little sign of slowing, and its impact will continue to ripple across sectors in ways that are both difficult to predict and impossible to ignore.
THE PROBLEM WITH ‘STYLE’
Much of the investment management industry is built around defined investment styles. Quality growth, value, defensive income — these labels serve a genuine purpose, providing clarity about how a manager approaches the market. But they also create rigidity. A manager wedded to businesses with powerful competitive economic moats: high switching costs, network effects, proprietary data will naturally have found themselves heavily exposed to exactly the sectors that AI is disrupting most profoundly.
The irony is that many of these businesses were considered among the safest of investments. Their moats, once thought impenetrable, are now being tunnelled beneath by AI. For managers whose philosophy is built around these characteristics, adapting is not straightforward, as to do so risks abandoning the very principles that define their approach and that their clients have bought into.
This is not a criticism of those managers. Style-based investing has served many investors well for many years. But it is an honest assessment of the challenge they face when the environment changes in a structural, rather than cyclical, way.
“The managers who are performing in this environment
share one characteristic above all others: flexibility.”
In a world changing at this pace, the ability to move; hold positions across different types of businesses, geographies and asset classes, and to do so without ideological constraint is not merely helpful. It is essential.
The managers who are performing in this environment share one characteristic above all others: flexibility. They are not dogmatic about where value must reside. They hold a foot in several camps simultaneously — beneficiaries of AI, businesses insulated from it and assets that provide ballast when equities are volatile. They are, in the truest sense, genuinely diversified.
This is the approach that has always underpinned our investment philosophy at IPS. We have never believed that a single style, sector, or theme should dominate a portfolio to the exclusion of others. That discipline, which at times requires patience when a particular style is in favour, has proven its worth acutely in this environment and our performance in 2025 and into 2026 reflects that. Indeed 17 of our 20 strategies sit in the top quartile or above over the last 3 years versus their respective TMPI benchmarks (source: IPS ART to 31 March 2026).
A NOTE FOR THOSE WITH FIDUCIARY RESPONSIBILITY
For those who have advisory or fiduciary responsibility over client portfolios, the question of when to act on manager underperformance is one of the most genuinely difficult judgements in our industry. We know this from our own experience across both our investment consulting and investment management businesses. Patience is a virtue; premature switching destroys value. Yet inertia carries its own risks, and the passage of time does not always justify it.
The usual comfort that a style which is out of fashion will eventually return to favour rests on an assumption of cyclicality. But if the AI-driven disruption we are witnessing is structural rather than cyclical, which we believe it is, then that assumption deserves scrutiny. The wave of disruption will not affect all sectors at once; it will move, as technology always does, unevenly and often unexpectedly. A manager anchored to businesses whose competitive advantages are most vulnerable to that disruption may face headwinds that persist well beyond a normal style cycle.
INDEPENDENCE, ALIGNMENT AND WHAT IT MEANS FOR YOUR CLIENT
We are conscious that for private client lawyers, accountants and fiduciaries who refer clients to investment managers, performance dispersion of this magnitude is concerning. Knowing that returns across the industry vary as widely as they do today makes the investment relationship a more consequential decision than it has been for some time.
We are proud to be among only six UK private client investment managers with assets under management exceeding £1 billion who remain both independent and partner-owned (source: Continuum Advisory Partners). That structure matters. It means our interests are genuinely aligned with those of our clients as our Partners’ capital sits alongside theirs, and our decisions are taken without the interference of a parent institution or external shareholder, with the conflict of interests that this may entail.
In an environment where performance has never diverged more sharply, we believe that combination of flexibility, a genuinely diversified investment approach and an aligned ownership structure is one which is valuable in this environment.
If we can help, whether through our investment consulting or investment management businesses, please do get in touch.
Jonathan Blain
Managing Partner
Email: jblain@ipscap.com
Phone: +44 207 469 6836
For more information, please speak with your usual contact or reach out to our team directly.
This document is for professional advisers only and does not constitute investment advice. Past performance is not a guide to future returns
