BofA’s Hartnett says concentrated U.S. stock returns are likely to persist
Investing.com - Active fund managers struggled in July, with only 31% of large cap funds outperforming their Russell 1000 benchmark, marking their worst month of 2025, according to recent performance data.
Growth fund managers faced the greatest challenges, with a mere 18% clearing their benchmarks—an 8th percentile month in data history since 1991. Five AI-focused companies - Nvidia (NASDAQ:NVDA), Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOGL), Amazon (NASDAQ:AMZN), Broadcom (NASDAQ:AVGO) - accounted for over 90% of the Russell 1000 Growth Index’s return, while many growth portfolio managers maintained underweight positions in three of these stocks entering July.
Small and mid-cap (SMID) funds also underperformed in July, with only 35% of small cap funds and 30% of mid cap funds beating their Russell benchmarks. The month featured a "risk-on" environment that favored non-earners, smaller companies, and high beta stocks—segments typically underweighted by SMID fund managers.
Year-to-date, the active fund hit rate has declined to 43% from 53% at the end of June, though this remains above 2024’s 36% rate. By category, 38% of small cap funds and just 13% of mid cap funds are outperforming their benchmarks year-to-date, compared to 43% of large cap funds.
Despite current challenges, conditions for stock pickers may improve as pairwise stock correlations have fallen below average following the post-Liberation Day surge, suggesting a return to a more idiosyncratic market environment. Performance dispersion—the spread between top and bottom quintile S&P 500 stocks over the past three months—has reached its highest level since 2020.
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