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Interestingly, surprisingly, although FTAV has been assured by numerous investors and analysts that this would be a remarkable year for active management, stockpickers are, once again, lagging behind the stock market.
This year hasn’t been a poor one, by any means. According to UBS, the average active large-cap US equity fund has risen by 20 percent this year, after fees. If this trend continues, 2024 could be one of the best years on record.
The issue is that the S&P 500 has achieved a return of 22.1 percent as of last week’s close, including dividends. The 2.1 percent shortfall for active managers is the largest since at least 2019, as per UBS statistics.
This phenomenon is somewhat expected in a market where larger stocks continue to outperform smaller ones (despite commendable efforts from smaller companies to change that narrative this year).
Most active managers typically have a lower exposure to larger stocks, as having top 10 holdings that closely resemble the index can be seen as unflattering. In fact, UBS’s equity strategist Patrick Palfrey estimates that 77 percent of US stockpickers are falling short of their benchmarks based on size.
Often, specific sectors performing exceptionally can adversely affect the industry’s overall results. However, in 2024, it’s not the sectors or large-caps in general that are hindering performance—it’s predominantly one stock: Nvidia.
A zoomable image is available here, but if you’d prefer not to strain your eyes, we can summarize that UBS estimates Nvidia contributes to 1.43 percent of the 2.1 percent year-to-date underperformance of US large-cap active managers. This is nearly double the combined impact of the next nine worst-performing stocks.
Nvidia has fluctuated since its peak in June, currently down about 13 percent from that high. Active managers are likely hoping for a continued decrease in Nvidia’s stock price while the overall market remains stable.