According to Zhitong Finance APP, since the global financial crisis, stock pickers' holdings in large-cap stocks such as Apple (AAPL.US) and NVIDIA (NVDA.US) have fallen to their lowest levels. In a year of decline for tech stocks, this strategy unexpectedly boosted their fund performance.
For more than a decade, active fund managers have struggled to outperform their benchmark indices, primarily because their positions in large tech stocks that drive market gains are lower than the high weights of these stocks in indices like the S&amp;P 500. This gap still exists as of the end of December 2024.
Morgan Stanley's strategists noted that at that time, the average gap between active institutional holdings of the largest U.S. tech companies, such as Apple, NVIDIA, Amazon (AMZN.US), Google (GOOGL.US), Meta Platforms (META.US), and Microsoft (MSFT.US), and their weights in the S&amp;P 500 index was the largest in at least 16 years.
However, this underweighting has turned into a blessing in disguise this year. As the so-called &#34;Magnificent Seven&#34; decline, the performance of active investors is improving.
According to Morningstar Direct, about 49% of actively managed mutual funds and exchange-traded funds are expected to outperform the S&amp;P 500 index in 2025, compared to 38% in the same period last year, far exceeding the past decade's excellent performance level of 17%.
<img src="https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20250226/1740573156445155.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="image.png" original-src="https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20250226/1740573156445155.png"/>
Figure 1
George Cipolloni, portfolio manager at Penn Mutual Asset Management, stated, &#34;As this year's 'Strong Seven' turns into the 'Weak Seven,' it has relieved active fund managers, as traders are shifting towards distressed value stocks and other unpopular areas of the market.&#34;
Market concentration can affect stock pickers' performance comparisons, as they often have to limit stock allocations for reasons including maintaining diversification and managing risk. Data from Birinyi Associates shows that last year, the S&amp;P 500 index's market capitalization grew by $10 trillion, with two-thirds contributed by just 10 companies.
So far this year, large tech stocks have underperformed. As of Tuesday's close, the Bloomberg Seven Tech Stocks Index has fallen 11% from its December 17 peak, entering a collective pullback amid concerns about an economic slowdown and rising inflation.
Meanwhile, data compiled by Savita Subramanian, a stock and quantitative strategist at Bank of America, shows that about 63% of active large-cap stock funds outperformed their benchmarks in January, marking the largest outperformance in a year
On Wednesday, large technology companies will face the biggest test of earnings season, with AI darling NVIDIA set to announce its performance after the market closes. This chip manufacturer has surged by as much as 170% in 2024, making it a significant driver of the S&amp;P 500 index's rise, but has fallen nearly 6% year-to-date.
Another factor that may have helped active fund managers in recent weeks is the reduced frequency of synchronized market fluctuations. One of the indicators measuring the degree of synchronized market movement—the Chicago Board Options Exchange 3-month implied correlation index—has approached historical lows.
<img src="https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20250226/1740573175629124.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="image.png" original-src="https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20250226/1740573175629124.png"/>
Figure 2
Some market participants indicate that such an environment allows stock pickers to gain an advantage, with individual stocks more likely to chart their own course rather than being swept up in macro rotations affecting the entire market.
Nevertheless, the recent weakness in technology stocks has only been fleeting. The Russell 1000 Value Index (which includes leaders like Walmart, Procter &amp; Gamble, and Philip Morris International) has risen 25% over the past 24 months. In contrast, the Russell 1000 Growth Index has surged 74% during the same period, a negligible increase.
Adam Sarhan, founder of 50 Park Investments, stated, &#34;The biggest risk for active managers is that market pressures eventually fade, and the seven giants of the U.S. stock market rebound, as we have seen time and again. I believe that from now on, technology will face more downside potential—but if NVIDIA succeeds greatly, then everything could change.&#34;

Nvidia will release its first quarter report for fiscal year 2026 ending April 27, 2025. 

According to analysts surveyed by FactSet, Nvidia's first-quarter revenue is expected to increase 66% year-on-year to $43.3 billion; adjusted earnings per share will increase 44% year-on-year to $0.88. The growth rate of revenue and profits has slowed significantly compared with the same period last year. In the same period last year, Nvidia's revenue increased by 262% year-on-year, and its adjusted earnings per share increased by 461% year-on-year.

Nvidia will release its first quarter report for fiscal year 2026 ending April 27, 2025. According to analysts surveyed by FactSet, Nvidia's first-quarter revenue is expected to increase 66% year-on-year to $43.3 billion; adjusted earnings per share will increase 44% year-on-year to $0.88. The growth rate of revenue and profits has slowed significantly compared with the same period last year. In the same period last year, Nvidia's revenue increased by 262% year-on-year, and its adjusted earnings per share increased by 461% year-on-year.

NVIDIA Financial Results for Q4 Fiscal 2025

NVDA

AAPL

Against the backdrop of a decline in technology stocks, stock pickers have reduced their holdings in large-cap stocks such as Apple and NVIDIA to a minimum, unexpectedly boosting the performance of actively managed funds. Morgan Stanley pointed out that the gap between active institutional holdings and the weight of the S&P 500 index has reached its largest in 16 years. According to Morningstar Direct, about 49% of actively managed funds are expected to outperform the S&P 500 index in 2025, an increase from 38% in the same period last year. As the market shifts towards value stocks, active fund managers have breathed a sigh of relief

- Since the global financial crisis, stockholders have reduced their holdings in major stocks like Apple and Nvidia to a record low, unexpectedly boosting fund performance amid a decline in tech stocks.  
- As the so-called "Magnificent Seven" falter, active investors are seeing improved results, with about 49% of actively managed funds expected to outperform the S&P 500 in 2025, up from 38% last year.  
- Despite recent challenges, the long-term outlook for tech stocks remains uncertain, with potential risks for active managers if the market rebounds.

Zhitong

NVIDIA

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Alphabet

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Is the US stock market changing? The "Seven Tech Giants" have fallen to "Weak Seven," while underweight funds have made a comeback, achieving the best performance in ten years