This year, actively managed funds in the United States are still unable to outperform the index, simply because of underweighting NVIDIA

US actively managed funds did not outperform the market this year, underweighting NVIDIA is the key. Despite NVIDIA's popularity on Wall Street, many large investors are not overly bullish on it.

NVIDIA surged yesterday, with the stock price reaching $124.26 at one point, closing up 3.32% at $122.8.

With the surge, some may think that NVIDIA's stock is very popular among fund managers, and may need to reduce their exposure when the price rises to mitigate risks. However, in reality, many other large tech companies have higher exposure in actively managed funds compared to NVIDIA's weight in the S&P 500 index.

Bank of America Global Research analyst Vivek Arya and his team recently conducted a quarterly review of semiconductor stock holdings in actively managed funds. The results show that although NVIDIA is the most held semiconductor stock in actively managed funds, with a holding rate of about 70%, its relative weight is still "low".

Vivek Arya pointed out that NVIDIA's relative weight is 0.99 times, much lower than the top 16 holdings in the information technology and communication services industries, even when NVIDIA's sales growth potential may be more than five times that of these companies.

Companies with higher weights than NVIDIA include Meta, Salesforce, Microsoft, and Alphabet. In the semiconductor industry, companies like Applied Materials, KLA, and Micron Technology also have higher relative weights.

Underweighting NVIDIA, US actively managed funds did not outperform the market again this year

Despite many investors and analysts promising a bountiful year for actively managed funds, it is unbelievable that US actively managed funds once again underperformed the market.

In fact, the performance of these funds this year is not bad. According to UBS data, large US actively managed funds have seen an average net growth of 20% this year. If this trend continues, 2024 will be one of the better-performing years on record.

The issue lies in the fact that as of last weekend, the total return of the S&P 500 index, including dividends, was 22.1%. In comparison, actively managed funds lagged behind by 2.1%, the largest underperformance since 2019.

This is normal in the current market environment, as the performance of large-cap stocks still outshines small-cap stocks. Actively managed funds typically underweight large-cap stocks to avoid having their top ten holdings closely resemble the index. Additionally, exceptional performance in certain industries can also disrupt the annual performance of actively managed funds.

However, what dragged down the performance of actively managed funds in 2024 is not certain industries, or even large-cap stocks, the main "culprit" is only one: NVIDIA. Since its peak in June, NVIDIA's stock price has fluctuated significantly, currently down about 13% from the high. Fund managers hope NVIDIA's stock price continues to fall, while also hoping for a strong overall market