Analysis-Funds punished for owning too few Nvidia shares after stunning 230% rally

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Nvidia Corp’s soaring rally has thrilled investors this year - except for the sizeable number of fund managers who avoided what they believe to be an expensive stock. Across nearly 330 mutual funds benchmarked to the S&P 500 or a similar index, only 15% held an above-index weight in Nvidia, according to a Morningstar analysis of the funds' most recent regulatory filings. Among those funds that held a below-average weight in Nvidia, 85% underperformed the index so far this year, Morningstar's data showed.

NEW YORK - Nvidia Corp’s soaring rally has thrilled investors this year - except for the sizeable number of fund managers who avoided what they believe to be an expensive stock.

Nvidia's valuation has been a primary reason keeping some investors away, while others are wary of buying in after the stock’s mammoth 230% run this year. The stock currently trades at 33.6 times forward 12 months earnings estimates, compared with less than 24 times for the Nasdaq 100, according to Refinitiv Datastream.

Aside from valuation, concerns about whether demand for chips will continue at current levels and about how the AI landscape will evolve have also kept some on the sidelines. Mutual funds hold their "widest ever" underweight in the seven names, Goldman Sachs said, with the average large-cap core mutual fund having 18% exposure to the group compared with the stocks' 28% weight in the S&P 500.

"It was a costly error of omission for funds that held an underweight to it," said Robby Greengold, strategist at Morningstar. A historical analysis by Schwartz found that stocks with similar ratios fell a median of 36% relative to the S&P 500 over the next 12 months.

 

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