"The last thing a diversified fund manager wants is to run a portfolio dominated by just seven technology companies - all American, all megacap, clustered in the same corner of the economy. Yet as the S&P 500 pushed to fresh records this week, investors were again forced to confront a painful reality: Keeping pace with the market has largely meant owning little else."
"A small, tightly linked group of tech super stocks accounted for an outsize share of returns in 2025, extending a pattern in place for the better part of a decade. What stood out wasn't simply that the winners remained largely the same, but the degree to which the gap started to seriously strain investor patience. Frustration dictated how money moved."
""The concentration makes it harder for active managers to do well," said Dave Mazza, chief executive officer of Roundhill Investments. "If you do not benchmark weight the Magnificent Seven, then you're likely taking risk of underperformance." Contrary to pundits who thought they saw an environment where stock picking could shine, it was a year in which the cost of deviating from the benchmark remained stubbornly high."
Seven American megacap technology companies contributed an outsized share of S&P 500 returns, pushing the index to new records while leaving most stocks behind. Market advances showed narrow participation, with fewer than one in five stocks rising on many days, and the concentration amplified the cost of deviating from the benchmark for active managers. Investors responded by withdrawing roughly $1 trillion from active equity mutual funds and directing over $600 billion into passive ETFs, reflecting an 11th consecutive year of active outflows. The dynamic increased pressure on active managers and tested investor patience with persistent narrow leadership.
Read at Fortune
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