The Magnificent Seven still make up a lion’s share of the market value of the S&P 500. But managers of actively managed mutual funds are finding better value and growth opportunities beyond this vaunted septet, particularly with financials and healthcare stocks.
According to a Goldman Sachs analysis of the holdings of 541 large-cap active mutual funds with a combined $3.5 trillion in assets, managers were underweight many big tech stocks in the first quarter compared with their benchmarks.
Goldman analysts found that active managers had the biggest underweights in Apple and Nvidia. The mutual funds had just a 3.3% weighting in Apple compared with a benchmark of 6.3%, while their weighting in Nvidia was 3.6% versus a benchmark of 5%.
Fellow Magnificent Seven members Microsoft, Tesla and Alphabet were also among the 10 most-underweighted stocks, ranking fourth, fifth and eighth, respectively. Chip giant Broadcom was the sixth-most underweighted stock.
Pulling back on tech exposure has turned out to be a prescient move for active managers given the sell-off for several of the Magnificent Seven this year. Apple shares are down more than 20% so far in 2025, while Tesla has tumbled more than 15%. Trimming positions in tech is one reason why 50% of actively managed large-cap mutual funds have outperformed their benchmarks this year, compared with a historical average of just 37% according to Goldman.
Still, it’s worth noting that Warren Buffett’s Berkshire Hathaway, a stock that is decidedly not a momentum play, was the third-most underweighted. Apple, however, is Berkshire’s largest stock holding. But that hasn’t really hurt the Oracle of Omaha, though. Berkshire’s stock is up more than 10% this year.
Many other Buffett-like value stocks, most notably big banks and financial firms, were among the top overweight positions, according to the Goldman analysts.
Wells Fargo, once a top Berkshire holding, was the biggest overweight while Bank of America, which is now one of Berkshire’s largest positions, was the second-most overweighted stock. Card firms Visa and Mastercard also made the list. They too are Berkshire investments.
Financials have been a good bet this year, rising on the hopes of more interest-rate cuts from the Federal Reserve, a recent increase in merger activity and the prospect of deregulation from the Trump administration. The Financial Select Sector SPDR exchange-traded fund is up nearly 4% so far in 2025.
Fund managers also have outsize positions in several healthcare stocks, most notably device maker Medtronic and insurer Cigna. Those bets have paid off so far this year, as shares of Medtronic are up slightly while Cigna’s has gained nearly 15%,
But not all healthcare stocks have been winners. Fund managers also had overweight positions in UnitedHealth Group, the insurer whose stock has plunged in recent weeks due to concerns about earnings, a management shake-up, and a litany of other issues.
UnitedHealth’s stock was up nearly 20% for the year as recently as early April, making it the top performer in the Dow Jones Industrial Average at the time. It’s now down more than 40%, and is the Dow’s biggest loser.
It just goes to show how quickly momentum can shift on Wall Street. Active fund managers need to remain nimble as well.
Write to Paul R. La Monica at paul.lamonica@barrons.com
