Beating the S&P 500 used to be the goal for active investors — now it's more like chasing a mirage.
In a note shared this week, Torsten Slok, chief economist at Apollo Global Management, delivered the hard truth: "There is no alpha left in public markets."
And the data seems to back him up.
In a landscape increasingly shaped by aging IPOs, dominant mega-cap stocks and the rise of passive investing, active investors are finding fewer ways to generate excess returns.
The idea of "alpha" — the holy grail of beating the market — is fading fast.
IPOs Are Older, And That’s a Problem
As Slock highlighted, the median age of companies going public was just five years in 1999. By 2022, that number had climbed to eight. Today, it's 14 — nearly triple what it was at the peak of the dot-com era.
In practical terms, that means most companies are waiting until much later in their lifecycle to hit the public markets, long after the rapid-growth phase that used to generate the biggest gains for investors.
This is more than a temporary shift — it reflects a deeper structural change. Startups are staying private longer, thanks to abundant venture capital and a desire to sidestep the regulatory scrutiny that comes with being publicly traded.
The Fed's aggressive rate hikes started in 2022 only made matters worse, choking off IPO activity further.
The end result? Fewer fresh opportunities for investors, and a market increasingly filled with companies that have already had their breakout moment behind closed doors.
Market Concentration Is Off the Charts
Meanwhile, the few stocks that dominate the S&P 500 are doing even more heavy lifting.
Today, stocks with a 3% or greater weight in the index account for a massive 35% of the total S&P 500 market cap — a level of concentration not seen since the dot-com era.
And the AI boom is driving much of that. The so-called "Magnificent 7" — including Nvidia Corp. (NASDAQ:NVDA), Microsoft Corp. (NYSE:MSFT), Apple Inc. (NASDAQ:AAPL), Alphabet Inc. (NASDAQ:GOOG) (NASDAQ:GOOGL), Amazon Inc. (NASDAQ:AMZN), Meta Platforms Inc. (NASDAQ:META) and Tesla, Inc. (NASDAQ:TSLA)— are responsible for the lion's share of both earnings growth and capital expenditure across the index.
According to Slok, the AI boom has pushed forward price-to-earnings ratios of the top 10 companies in the S&P 500 beyond levels seen during the tech bubble in the late 1990s. In other words, valuations are already sky-high.
Passive Funds Are Winning — And Crushing Active Managers
Active fund managers are supposed to find market inefficiencies and deliver outsized returns. But most of them aren't doing that.
According to S&P Global's latest SPIVA report, a staggering 88.29% of large-cap funds underperformed the S&P 500 over the last 15 years. That underperformance held steady at around 86% over both 10 years and five years.
Even in the most recent one-year period, nearly three out of four large-cap funds failed to beat the benchmark.
That's a tough pill to swallow, especially for investors paying higher fees for active management. Passive vehicles like Vanguard S&P 500 ETF (NYSE:VOO) are cheaper, more accessible and, more often than not, more effective.
Can the Tide Turn for Active Investing?
For individual investors, the game has fundamentally changed. With fewer companies entering public markets, massive concentration in index heavyweights, and the dominance of passive strategies, there are fewer inefficiencies left to exploit.
Unless there's a wave of younger companies choosing to go public, or the AI hype cycle cools, the status quo will likely persist.
And for now, as Slok put it, the public market's alpha is gone.
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Image created using artificial intelligence via Midjourney.
