Core Insights - A small group of technology stocks, referred to as the "Magnificent Seven," has dominated market returns in 2025, continuing a trend observed for nearly a decade, leading to increased frustration among investors [1][9] - Approximately $1 trillion was withdrawn from active equity mutual funds throughout the year, marking the steepest net outflow in the current cycle, while passive equity exchange-traded funds attracted over $600 billion [2][9] - The concentration of returns among a few stocks has made it challenging for active managers to outperform, as deviating from benchmark weights can lead to underperformance [3][10] Market Participation - In the first half of the year, less than 20% of stocks rose in tandem with the broader market, indicating narrow participation, which can negatively impact relative performance when gains are driven by a limited number of stocks [6][10] - The S&P 500 outperformed its equal-weighted counterpart throughout the year, presenting a dilemma for investors: either underweight the largest stocks and risk underperformance or align closely with the index and struggle to justify the costs of active management [7][10] Performance Metrics - 73% of equity funds in the US underperformed their benchmarks in 2025, the fourth highest rate of underperformance since 2007, exacerbated by a recovery from April's tariff concerns and a surge in enthusiasm for artificial intelligence [7][10] - Dimensional Fund Advisors LP's International Small Cap Value Portfolio, valued at $14 billion, achieved a return of over 50% this year, significantly outperforming both its benchmark and major indices like the S&P 500 and Nasdaq 100, by focusing on a diverse range of approximately 1,800 stocks primarily outside the US [8][10]

Bloomberg The last thing a diversified fund manager wants is to run a portfolio dominated by just seven technology companies — all American, all megacap, clustered in the same corner of the economy. Yet as the S&P 500 pushed to fresh records this week, investors were again forced to confront a painful reality: Keeping pace with the market has largely meant owning little else. A small, tightly linked group of tech super stocks accounted for an outsize share of returns in 2025, extending a pattern in plac ...