A new kind of alpha in the market that big money managers are chasing

Stock pickers have long tried to beat the market, and many continue to fail as large-cap mutual funds in the U.S. underperform after fees. S&P 500 80% to 90% of all funds in ten years. But there are ways to consider generating outperformance of a benchmark, known as alpha, at a broader portfolio construction level, using strategies that include assets from cash to bonds to commodities. This approach is the focus of asset management firms from Pimco to State Street Investment Management; Both appeared on CNBC’s “ETF Edge” this week to discuss where they’re looking for different returns outside of the U.S. large-cap stock market.

These executives aren’t saying the U.S. stock market won’t continue to do well. But as major swings in equity markets on geopolitical headlines, macro uncertainty and central bank interest rate policies diverge around the world, the classic advice to seek portfolio diversification and fine-tune margins could lead to some extra juice in 2026 returns.

Matthew Bartolini, State Street Investment Management’s head of global research strategists noted that 2025 is the first year since 2019 that stocks, bonds, gold and commodities all outperform cash. “It’s not about beating the alpha index, but that’s where the idea of ​​crafting alpha or portfolio construction alpha might come from,” he said.

Start with your cash

Investors can start thinking about this in the context of their cash.

Bartolini said so much assets are held in cash-like accounts that “even that is alpha in moving away from that cash.”

“Cash management is the first step,” said Jerome Schneider, Pimco’s head of short-term portfolio management, adding that advanced cash accounts can provide 1-2% higher returns than a traditional cash account.

Choose bonds, not stocks

Investors may also consider bonds in terms of getting extra returns without trying to beat the S&P 500, according to Schneider. Pimco offers an ETF that corresponds to this idea, recently launching the actively managed PIMCO US Stocks PLUS Active Bond ETF (SPLS), which combines passive exposure to the S&P 500 with active fixed income strategies.

Pimco expects economic growth to remain healthy in 2026, even as the U.S. economy shows signs of uneven performance across households and sectors, Schneider said. But he added that it’s important to look beyond U.S. markets, noting that different monetary policy paths across countries from Canada to Japan to Australia to the United Kingdom are a source of relative value opportunities. “[We] “For the first time in almost a financial generation, there are very different monetary policies,” Schneider said.

He said investors should think broadly about fixed income exposure, including securitized assets like agency mortgages, rather than just corporate loans late in the cycle. Schneider warned that passive benchmarks could limit flexibility at a time when valuation and geopolitical issues are high. He pointed out that the long-term performance of active fixed income funds compared to comparative indicators is much better than equity funds. S&P Global SPIVA scorecardTracking all funds against their own criteria, the track record of bond funds is mixed and varies widely from category to category.

Change S&P 500 exposure and risk profile

Bartolini said improving the traditional portfolio design does not mean giving up on the U.S. market; it was a popular topic this week amid trade fears of “selling out America” ​​based on uncertainty about President Trump’s foreign policy.

However, this may mean looking at additional asset classes to buffer US market risks. State Street offers the SPDR Bridgewater All Weather ETF (ALLW), which it launched last year with hedge fund Bridgewater Associates; which corresponds to this idea and invests in global stocks, bonds, inflation-linked bonds and commodities.

“We’re seeing a lot of portfolios that are dominated or dominated by U.S. stocks,” Bartolini said. “You’re also seeing an upward trend in inflation-linked bonds and the commodity complex,” he added.

Gold posted its best return since 1979 last year, while 70% of international stocks outperformed the U.S. market, according to Bartolini. Gold, silver And platinum They all reached record highs on Friday. This argues for investors who today have up to 80% exposure to US equities in many cases to further “blend” their assets. “Clients are structurally underweight real assets like gold, commodities or inflation-linked bonds,” he said. “And you don’t have to choose one, but have the risk premium on all of them and move towards the underrepresented,” he added.

He said investing in U.S. stocks over the past 15 years has been “the most profitable trade you can make” and that he doesn’t believe there will suddenly be a massive “sell-off” in U.S. assets. “‘Sell’ is a headline, not a transition point for portfolio construction,” Bartolini said. But he added that an 80% allocation to a country’s stock market is also against diversification and balance.

The idea, according to Bartolini, is rotation rather than wholesale risk aversion, which could mean reducing risk to 75% or 70% instead of a portfolio of 80% U.S. large-cap stocks. He also highlighted renewed interest in small-cap stocks in the second half of 2025 following expectations of easier monetary policy and fiscal support. Small-cap stocks have outperformed large-cap stocks since mid-2025, while earnings expectations for 2026 have also improved. Russell 2000 Index It’s trading at an all-time high and is up nearly 9% this year versus a nearly flat return for the S&P 500; as the small-cap index outperformed the large-cap index for 14 consecutive market trading sessions, the longest streak of relative outperformance since May 1996. Over the past six months, the large-cap stock benchmark has more than doubled its returns.