A New Capital Regime Challenges Passive Investing Assumptions

MFS argues that markets are transitioning from a capital-light to a capital-intensive regime, with significant implications for asset allocation and index construction. 

• The post-2009 era of low capital intensity and falling rates is giving way to one defined by higher investment needs, rising costs and geopolitical fragmentation.

• AI, supply chain reshoring and energy constraints are driving a shift toward tangible investment, increasing the marginal cost of capital.

• Benchmark indices, shaped by the previous regime, may no longer reflect future winners, raising risks for passive strategies.

As capital becomes more scarce and expensive, the report challenges whether past market leadership can persist in a fundamentally different environment.