Investing.com -- The Magnificent 7 stocks have been the hot stocks to own over the bull cycle, but the largest U.S. investors have been surprisingly missing out because of market rules that limit how much they can own, but these funds are poised to make changes to lean more heavily into the Mag 7, ushering a fresh wave of investment dollars into these megacap stocks.
The Investment Company Act of 1940 suggests that portfolio holdings which account for more than 5% of total assets"are uncomfortably large," HSBC said. To maintained their"diversified" status, mutual funds need to ensure that investment positions in portfolios which account for more than this 5% threshold remains below 25% of its total assets.
To buy more of the stocks that have had runaway gains and have breached the 25% threshold, funds will have to become classified as “non-diversified," but this requires shareholder approval and diversification is still something that holds sway with many investors.