August was a banner month for stockpickers, especially for those who made savvy calls on a small handful of Big Tech winners, also known as the ‘Magnificent Seven.’
Fund managers “got the Magnificent Seven almost exactly right,” electing to underweight Apple and Tesla , which were two of the worst performers last month, while overweighting Alphabet , Amazon , Microsoft , and Nvidia , which outperformed, said Savita Subramanian, head of equity and quantitative strategy at Bank of America, and lead author of the note. Their one bobble: They also overweighted Meta Platforms , which underperformed.
“These stocks can make or break your performance in any given month because they’re such big parts of the benchmark,” Subramanian told Barron’s. “Half the battle for mutual funds these days is just getting that 30% of the benchmark right, and it’s down to seven decisions that make up a huge part of your alpha.”
Taking a longer view on fund performance, however, only 37% of large-cap funds are ahead of their benchmark this year. That’s not altogether surprising as data consistently show actively managed funds, in general, fail to beat their benchmarks, especially over longer time horizons.“Mutual funds are almost maxed out in terms of how much of these stocks they can own from a concentration-risk perspective,” she said.
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