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u.s. active funds have not outperformed the market this year and are underweightnvidiais the key. despite nvidia's popularity on wall street, many big investors aren't overly bullish about it.

nvidia surged yesterday, with its stock price reaching $124.26, and closed up 3.32% at $122.8.

with the surge in momentum, some might argue that nvidia stock is so popular among fund managers that they may even need to pare their exposure as prices rise, creating risk for the stock. but in reality, many other big tech companies have higher exposure in active funds relative to nvidia's weighting in the s&p 500.

bofa global research analyst vivek arya and his team recently conducted a quarterly review of semiconductor stock holdings among active funds. the results show,although nvidia is the most-held semiconductor stock among active funds, with a holding rate of about 70%, its relative weighting is still "underweight."

vivek arya pointed out that nvidia's relative weight of 0.99 times is much lower than the top 16 peers with the highest holdings in the information technology and communication services industry, and this even occurs 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, alphabet. in the semiconductor industry,applied materialscompany, kla,micron technologythe relative weighting of other companies is also higher.

u.s. active funds underweight nvidia fail to outperform again this year

despite assurances from many investors and analysts that this would be a banner year for active funds, incredibly, u.s. active funds have once again underperformed the market.

in fact, the performance of these funds this year is not bad. according toubsaccording to data, large u.s. active funds have experienced an average net growth of 20% this year. if this trend continues, 2024 will be one of the better years on record.

the problem is that as of the end of last week, the s&p 500, including dividends, had returned 22.1%. in contrast,active funds lagged 2.1%, the largest lag since 2019.

this is normal in the current market environment, as large-cap stocks are still outperforming small-cap stocks at the moment.active funds typically underweightlarge cap stocks, to avoid that the top ten positions are basically similar to the index. in addition, when certain industries outperform, it can destroy active funds' annual performance.

however, it is not certain industries or even large-cap stocks that will drag down the performance of active funds in 2024. there is only one main "culprit": nvidia.nvidia's stock price has been volatile since its june high, and is currently down about 13% from its high. active fund managers hope that nvidia's stock price continues to fall, but they also hope that the overall market remains strong.