Research Agenda 2026: stock markets Why capital flows and market narratives are changing how global markets behave. July 2026 Article Long r

Market price discovery is becoming more flow-, factor- and narrative-driven, increasing both the opportunity for long-term stock-pickers and the need to construct portfolios that investors can hold through discomfort.

• From 2006 to 2025, US-domiciled equity index mutual funds and ETFs received roughly $3.2tn of cumulative net inflows, while active funds experienced almost identical net outflows.
• Passive vehicles rose from less than one-third of the market to more than 60% at the end of March 2026, with over $19tn in assets allocated through rules such as index membership and benchmark weights.
• ETF assets increased from less than $1tn in 2010 to $13.4tn in 2025, and the number of US-listed ETFs is now greater than the number of publicly listed companies; many products also use leverage or target narrow themes.
• The fictional AI-disruption scenario published in February 2026 was credited with contributing to a sell-off that erased an estimated $700bn from software and digital-company market capitalisation, despite no comparable company-specific disclosures or official data.
• Baillie Gifford says its Global Alpha portfolio construction has broadened exposure through new holdings in banking, energy and natural resources, while predicted volatility, tracking error and beta have fallen and stock-specific insight is intended to drive more returns than factor exposure.
• The portfolio is not meant to eliminate volatility or active risk; instead, diversification should make the intended stock-specific discomfort easier to endure and reduce accidental exposure to growth, value, size, interest-rate and other dominant factors.

Takeaway: Investors should expect longer and sharper periods in which flows and narratives overwhelm fundamentals, but this may improve the opportunity for patient active management; portfolio construction must make that patience behaviourally and financially sustainable without turning the strategy tactical.