Capturing opportunity as the equity landscape evolves
Equity markets continue to be captivated by the global Artificial Intelligence narrative—a storyline that has shaped returns, sentiment, and macro commentary through recent years. The AI ecosystem and its beneficiaries remain a powerful driver of index level performance, but there are many other less-high-profile factors influencing today’s market landscape.
We have written previously about the fixation of equity market participants on all things AI-related and what that has meant in terms of market concentration and performance. But as we have seen through history, prior episodes of market concentration and leadership from a narrow set of mega cap companies can obscure the rich opportunity that lies elsewhere. We have encouraged investors to look beyond such a small cohort of stocks and we have glimpsed signs of a broadening out of equity leadership into other regions of the world and segments such as small-cap stocks.
A very narrow, macro-driven market can create headwinds for active investors, in particular, unless they happen to latch onto and ride the dominant theme. While the headlines have continued to focus heavily on AI, there has been a further evolution in market performance since the end of 2025. So far this year, the pairwise correlation between stocks has continued to trend down (Figure 1), indicating a market increasingly driven by idiosyncratic factors, rather than a single macro theme, where stock selection could be rewarded more. Moreover, there have been tentative signs of an uptick in market dispersion—such a development creates opportunities for skilled active equity managers to generate returns by capturing the spread between good and poor performers (Figure 2).
Broadening market dispersion: Opportunities beyond the AI narrative
An examination of the market in more detail provides additional insights into the current dispersion of returns. At a region and sector level, for example, the strongest performances over the past year have come from pockets of the market not associated with the prevailing IT-related narrative. As Figure 3 shows, European banks have led the way. Although semiconductors have benefitted globally from the AI wave, the considerable breadth amongst the other top-performing groups points to healthy broad-based market strength.
Figure 3: Top 10 returning developed market region/industry group segments over past 12 months
| 12m Total Return (%) | |
| European Banks | 92.7 |
| Japan Semiconductors and Semiconductor Equipment | 90 |
| European Semiconductors & Semiconductor Equipment | 82 |
| Japanese Energy | 69.5 |
| Asia Pacific Real Estate Management & Development | 66.7 |
| North American Semiconductors & Semiconductor Equipment | 63.1 |
| European Utilities | 61 |
| Japanese Capital Goods | 55.8 |
| Japanese Utilities | 54.7 |
| Japanese Banks | 50.8 |
Source: Factset, MSCI, State Street Investment Management as at February 20, 2026. The performance data quoted represents past performance. Past performance does not guarantee future results. Index returns are unmanaged and do not reflect the deduction of any fees or expenses. Index returns reflect all items of income, gain and loss and the reinvestment of dividends and other income as applicable. Weighted average returns in US dollars for stocks in the MSCI World Index.
With dispersion now evident across sectors and regions, active risk-taking is increasingly being rewarded. For systematic investors, this backdrop is particularly advantageous: models calibrated to identify relative mispricing, sentiment shifts, and behavioural overreactions typically perform best when markets are neither uniformly trending nor uniformly mean reverting.
While AI continues to spark both optimism and anxiety—especially around whether vast investment will ultimately translate into sustained profitability—the current cycle is not solely defined by one technological trend. We have previously emphasized the need to look past US centric themes when Value, Small Cap, or regional rotation stories were unfolding, today’s market offers a similarly broad set of return drivers.
The importance of a broader view
We believe to be successful in active management and to deliver the best possible risk-adjusted return outcomes it is essential to have as broad a view as possible. Our systematic active process, with a global multi factor, multi signal framework that explicitly prices risk, costs and behavioural patterns across tens of thousands of securities, underpins our ability to harvest opportunities wherever they emerge—and to do so with discipline as markets continue to evolve.
AI may dominate equities, but market dispersion is broadening, rewarding active managers who look beyond headline trends for global opportunities.
To learn more about the views and investment capabilities of the Systematic Equity – Active team, please visit our website.