The Evolution of Passive Investing: Why ‘active passive’ is the next-generation, low-cost solution for diversified portfolios

Passive investing has evolved rapidly over the past two decades as investors increasingly gravitate towards low-cost solutions that track the performance of indices, across equities, bonds and other assets. But what was once a relatively narrow proposition has since expanded dramatically, with a far broader range of index-tracking and factor funds now available to support more sophisticated portfolio design and the ability to express more precise investment views.

Central to this evolution is the emergence of ‘active passive’ investing – an approach that combines the low cost and transparency of deploying through index tracking funds with an active approach to tactical asset allocation and style tilts.  

Dan Caps^[2] , Lead Portfolio Manager of Evelyn Partners’ Index MPS (Managed Portfolio Service), explains that managers of multi-asset portfolios are no longer confined to a limited set of market-cap weighted equity exposures and broad bond benchmarks, which historically offered little flexibility for expressing more nuanced portfolio views. Instead, today’s expanded toolkit allows index-tracking and factor funds to be used to achieve a more balanced exposure across regions, sectors and investment styles. 

“We can now do far more with passive strategies in portfolio construction than was possible 20 years ago largely thanks to the huge amount of product innovation in index-tracking strategies. While keeping costs low remains a key attraction, and transparency and simplicity are equally important, ultimately, asset allocation is the main determinant of long-term returns. 

“At Evelyn Partners, our Index MPS portfolios are built around central asset allocation guidance, with differentiation coming through how these views are implemented.

"Market‑cap‑weighted indices often provide the foundation but are then complemented by techniques such as equal weighting, value tilts, duration control and diversification beyond traditional equities and bonds. The result is a more modern, evolved approach to constructing an index‑tracking portfolio.” 

This has underpinned the success of Evelyn Partners’ five Index MPS portfolios, each suited to different risk profiles, which were first launched to direct clients of Evelyn Partners in August 2022. The range was extended to the firm’s intermediaries business a year ago, providing financial advisers with a low-cost, strong performing and differentiated range of solutions for their clients amid growing demand for index investing.  

Having marked its three-year anniversary last summer with a robust and highly competitive performance over that period, Evelyn Partners’ Index MPS has continued to build on that momentum into the first quarter of 2026 which was a choppy period for markets as war broke out in the Middle East. Each risk profile has significantly outperformed its Asset Risk Consultants (ARC) comparators since launch, over the past 12 months and in the first quarter of 2026^[3] .

Cost efficiency has also played a meaningful role in supporting performance. The Index MPS range has an average ongoing charges figure (OCF) of 0.10%^[4] , and a competitively priced annual management fee of 0.15%. This places it among the cheapest 10% of all MPS offerings on the market, according to research from market intelligence firm Defaqto^[5] . However, it is Caps’ active approach to implementing index-tracking strategies that has ultimately driven strong return outcomes. 

“This is not something we could have done five or 10 years ago when some of today’s biggest passive multi-asset funds were first launched,” Caps says. “What is becoming increasingly evident is that not all of those funds have evolved their implementation, and as a result have not kept pace with the innovation we've seen in the index-tracking investment space.” 

Caps highlights the risks of complacency that can arise from long-running success of market-cap-weighted indices, warning of ‘a false sense of security’ as markets have become increasingly concentrated, particularly in respect of US mega‑cap technology stocks. The growing popularity of index trackers has coincided with a rare period of exceptional performance for market-cap weighted global exposures, masking underlying risks. 

“If investors believe there is no need to actively consider asset allocation and instead focus on buying market-cap, then they are in danger of underestimating market risks, especially given the absence of a prolonged downturn since 2007-09,” Caps adds. 

“The broader range of index-tracking options now available reflects the rise in popularity of index investing in general, as greater interest in this style of investing, and more assets being invested, encourage fund providers to offer a wider range of funds in this space. However, market-cap weighted indices have become more concentrated and, in many cases, more expensive, in terms of valuations, and the momentum has started to turn against US-focused market-cap exposure, with the US underperforming other equity regions by the greatest margin in 32 years in 2025.  

“The idea that your portfolio changes that significantly and you do nothing about it doesn’t sit comfortably with us. As concentration increases, our response at Evelyn Partners is to seek diversification, using some exposure to equal‑weight or fundamentally weighted strategies to offset unintended biases. The same applies in fixed income, where duration and credit risk must be actively considered rather than simply accepting benchmark exposure.” 

Caps says the valuation and concentration risk could lead to a prolonged downturn for the most heavily weighted market-cap exposures. He points to 2022 as an example of this, when broad benchmark exposure proved challenging for many investors, particularly within fixed interest, with some cautious portfolios only now beginning to recover from the sell-off.  

“With our asset allocation framework, we were able to protect our Index MPS portfolios from much of the 2022 downturn. That included keeping duration short in fixed interest and having much greater diversification in our equity portfolios than standard market-cap weighted allocations. This puts our range in a stronger position to weather volatility,” he explains. 

While Caps is proud of the performance achieved to date, he emphasises that his “passion for passives” is ultimately driven by a broader ambition: encouraging more people to invest. 

“The rise of passive investing has been positive for all investors in helping to drive down costs. But if we can move beyond the active versus passive debate and focus instead on getting more people comfortable with investing in the first place, that’s where the real long-term benefit lies,” he says. 

“The UK has an investment problem. Excessive focus on what is ‘right’ or ‘wrong’ can create barriers, so let’s get people comfortable with investing. Passive strategies have earned their place in portfolios through their low cost, transparency and simplicity – and that makes them an excellent starting point for many investors.” 

Notes to Editors About Evelyn Partners’ Index MPS   

^[1] Advisers and their clients using the Index MPS service benefit from Evelyn Partners’ active asset allocation framework and regular rebalancing, with underlying exposure deployed through a portfolio of passive strategies, including index funds and exchange traded products (EPTs). This includes a Gold Exchange-Traded-Commodity which has been held across the range since launch. The five portfolios are suited to different risk profiles: Cautious, Balanced, Growth, Adventurous and Maximum Growth, each of which have strong track records since launch.   

Open to accounts with a recommended value of £20,000 and above, portfolio construction across the Index MPS range makes use of traditional index trackers, as well as factor funds and smart beta products, distinguishing the approach from offerings which focus on market-cap weighted indices. Evelyn Partners’ approach allows for a greater balance across sectors and styles, which allows more flexibility in positioning. This helps reduce the inherent risk of sector and stock concentration and exposure to extreme valuations which can come with solely market-cap weighted exposures.     

Our Index MPS range is available through Aviva, Aberdeen Wrap, Transact, Scottish Widows, AJ Bell and the Quilter platforms (financial advisers only) with further options expected subject to demand.    

^[2] Dan Caps is Lead Portfolio Manager on Evelyn Partner’s Index MPS range and the Smart fund range on Bestinvest. He is a member of Evelyn’s Passive Fund Research Team, responsible for researching index-tracking funds and ETFs. Dan has over 20 years’ experience working in Financial Services and has been involved in constructing index-tracking and factor-based portfolios since 2006. Dan sits on the Investment Association ETF Committee and is a FTSE Index Advisory Board member. Dan appeared in the CityWire Wealth Manager Top 100 list in 2024 and 2025 and was included in the Investment Week Leaders List in 2026. Dan has judged the ETF Stream Awards in 2023, 2024 and 2025.Dan is a CFA Charterholder.  

^{[3] Performance - See below}

^[4] Underlying fund charges and the platform cost will vary over time as the underlying holdings within the portfolio change.   

^[5] According to Defaqto In Focus: MPS (July 2025 Edition).