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ClearBridge tells Sarasota pension board AI-driven index concentration hurt 2025 returns; board will consider passive option
Summary
ClearBridge managers told the City of Sarasota pension board that late-2025 returns were driven by a narrow, AI-centered rally concentrated in a few large tech names, which penalized diversified managers. Trustees discussed whether to increase passive exposure and agreed to examine the option at a future meeting.
Asset manager ClearBridge told the City of Sarasota General Employees Pension Plan Board that calendar-year 2025 produced an extreme concentration in the Russell 1000 Growth benchmark and that momentum-driven AI winners made it difficult for diversified growth managers to keep pace.
"Last year was really the tale of two markets," Steve Otto of ClearBridge said, describing a period in which the first half produced relative downside protection for diversified holdings, while a momentum-driven rally later in the year rewarded a small set of technology names. Otto and his colleague Jeff Lane said that five stocks and related communication-service classifications accounted for roughly 70% of the benchmark at year-end and that the top three names represented about 36% by themselves.
Jeff Lane walked trustees through slides showing sector shifts (healthcare's share falling from about 16.5% to roughly 6%) and stressed the challenge for diversified managers when index returns are powered by momentum rather than broad earnings growth. He also cited very large capital-expenditure figures for hyperscalers, which were a core driver of the late-2025 rally.
Board members acknowledged the firm's positioning and asked whether switching to more passive exposure for the large-cap growth sleeve should be considered. One trustee noted the board already uses Vanguard passive exposure for a portion of the sleeve and asked staff and consultants to explore the question further. The board agreed to place passive-versus-active allocation on a future agenda.
ClearBridge representatives emphasized they remain positioned to benefit when markets broaden, while acknowledging the firm underperformed during the concentrated rally. Trustees did not take immediate action at the meeting; they directed staff to schedule a fuller review at an upcoming meeting.
