Active Managers Aren’t Chasing the Tech Rally

Key Takeaways

Powered by mega-cap technology names, the U.S. stock market is trading near all-time highs, but active managers aren’t joining the rally.
Overall ownership of the largest tech names among active managers declined during the second quarter, with fewer managers holding positions. Those that did reduced their active weights.
Mega-cap tech ownership also declined among growth-oriented large-cap managers.

The U.S. stock market continues to trade near all-time highs, with performance again concentrated in a handful of the largest, predominantly tech-oriented companies in the S&P 500 Index. Meanwhile, active managers are continuing to underperform.

This raises an important question: As performance lags, are managers changing their tune and buying more mega-cap tech names?

In short, no. In fact, our research reveals the opposite is happening.

Mega-Cap Pullback

Within the broader U.S. large cap universe—value, growth and market-oriented managers—overall ownership of the eight mega-cap technology-oriented companies actually modestly declined in the second quarter.

Apple saw the largest decrease in managers holding shares, with Tesla also experiencing a notable drop. The number of managers owning Microsoft also dropped by nearly 4%, although the software giant retained its position as the most widely held “favorite” stock. Bucking the overall trend, Meta and Amazon saw small increases in the number of managers owning their stock.

Trimming Tech

Among large-cap growth managers, a similar story played out during the quarter, with reduced ownership across most of these names. In fact, only Broadcom saw a quarterly increase in ownership.

Weight Watchers

Recent index changes also prompted some managers to trim their mega-cap holdings. During the Russell indexes' annual reconstitution, Meta, Alphabet and Amazon shifted from being entirely in the Russell 1000 Growth Index to being partially in the Russell 1000 Value Index. This change lowered these companies’ combined weight in the Growth Index by about 5%. As a result, managers’ existing positions suddenly looked overweight compared to the new benchmark, leading some to reduce their holdings to realign.

Tech Check

Taken together, these shifts show active equity managers remain relatively cautious on the largest technology stocks. As we recently noted, this is due to high valuations and increased uncertainty around economic returns from intensive capital spending on AI infrastructure.

Recent portfolio positioning changes and our regular conversations with managers suggest active equity managers will continue to trim their holdings in the group, especially in light of the latest index adjustments.

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Important information pertaining to the hypothetical example: Past performance does not predict future returns. Return level is proportionately scaled in line with cash level to be overlaid. Source: Russell Investments. Assumptions: Average cash level 1.0%, 10-year history from 12/31/2023, gross of fees. Opportunity cost from not securitizing cash varies by asset allocation and time period, and is represented by horizontal bars as marked within the chart legend. Target asset allocation used: 0% cash, 74% MSCI World, 26% Global Aggregate (GBP Hedged). For illustrative purposes only. Does not represent any actual investment. Indexes are unmanaged and cannot be invested in directly. Performance benefit (net) of overlaying cash by last 5 individual calendar year is as follows: 2023:20 bps, 2022:-17bps, 2021:16bps, 2020:14bps, 2019:23bps.

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