Where stock pickers are avoiding volatility

For many investors, total returns are the top priority when it comes to choosing a fund. But this figure doesn’t always tell the whole story.

A lucky few investors might be able to view their investments purely as numbers, and ride out waves of volatility as they come without much worry. But for many of us, these market ups and downs can be a major stressor. To manage this, many people choose to invest on a spectrum of risk tolerance, preferring to get a smoother ride when building their returns, even if it means sacrificing a bit of the end number.

AJ Bell’s ‘Manager vs Machine’ report examined active funds in seven key equity sectors to see how they stacked up versus their passive peers in H1 2026 in order to see where stock pickers were actually adding value to your portfolio.

In further analysis, AJ Bell looked into how the investment journey felt for investors in each sector during the first half of the year to see if paying for active gave you fewer sleepless nights.

Methodology: volatility and maximum drawdown

To test how choppy an investor's journey was, we have a couple of factors we can compare.

The first most people will have heard of: volatility. This is the measure of how often and how fast things jumped around.

The other is a slightly more jargony metric called maximum drawdown. This is the difference between the very peak of the returns you could have made over a period of time, and the most you could have lost. ‘0’ is the baseline, so you want the final number to be as close to that as possible, with anything less than –10 a ‘decent’ score.

Think of maximum drawdown like the ‘worst case scenario measure’; if you happened to buy right at the peak and sell your losses at the lowest valuation point.

Do active funds provide more protection?

Some people will add active funds to their investment portfolio because the managers have the ability to put more downside protection in place. A general tracker fund will, by design, reflect the movements of the benchmark it’s based on, meaning there’s no additional volatility protection in falling markets because the fund isn’t making a call on them, unlike in an active fund.

The results found that in several sectors, including some where active funds generated higher returns overall, the stock pickers did not give investors a less stomach-churning ride than passives.

Funds focused on Asia excluding Japan and the UK performed the worst in terms of active managers not giving investors a smoother ride in the first six months of the year.

That doesn’t mean there’s no value in choosing an active fund in either of these sectors. Rather that, especially with each market having its own drivers of volatility alongside shared issues like wars and geopolitics going on, volatility and potential losses are part of markets, so you should be discerning that you’re picking the right type of fund for your goals.

Japanese funds had the strongest trend of active funds protecting against volatility, as just one of the 15 funds with ‘decent’ maximum drawdown was passive.

Funds investing in Europe excluding the UK, global funds, global emerging markets funds and North American funds were a more mixed bag with most of the passives ranking in the middle and active managers split between those that really suffered with volatility and big potential losses, and those which managed to keep their highs and lows in a pretty narrow channel.

This can be for a variety of reasons but mainly, if the managers had actively avoided the most volatile sectors.

In Europe, that would be the luxury goods. Meanwhile those in US and Global with a less blanket view of tech and AI would have fared better. Emerging market funds that avoided weaker Chinese sectors or politically sensitive markets had lower volatility levels.

Investing for the long-term in either active or passive is one of the best ways to smooth out any ripples markets try to throw at your portfolio as near-term number watching is usually ill-advised.