A report from Jefferies highlighted the challenges faced by active fund managers in 2024, marking it as a particularly difficult year. According to the firm’s analysis, based on 13F filings as of September 30, 2024, Mid Growth funds experienced their worst year since 2009, trailing by over 600 basis points (bps).
Similarly, Mid Core funds had their worst performance since 2020, falling behind by over 300bps. Large Growth funds also lagged, underperforming by 312bps.
Despite the generally tough environment for active managers, there were some positive outcomes. Small Value funds outperformed, and Large Value funds beat the Russell 1000 Value Index (R1V) for the fourth consecutive year.
Large Growth funds saw a significant rise, increasing over 30% following a 40% uptick in 2023. On average, funds returned 16.7% for the year.
The concentration of returns within growth indexes was a notable trend, where a small number of stocks drove much of the gains. The top 10 stocks in the Growth Index (R2G) accounted for 45% of its total performance, while in the Russell Midcap Growth Index (RMG) and Russell 1000 Growth Index (R1G), this figure was even higher, at 58% and 77%, respectively.
The report also detailed shifts in investment strategies among small, mid, and large cap fund managers. Small Core and Growth managers increased their relative size compared to their benchmarks, despite Jefferies’ recommendation to lower weighted-average market caps.
Small Core funds entered the fourth quarter with an overweight position in Consumer Discretionary and underweight in Health Care, particularly Biotech, while Small Growth managers showed a marginal overweight in Utilities for the first time since March 2022.
In the Mid Core category, managers shifted to being overweight in Technology and Utilities and underweight in Consumer Staples. Mid Growth funds made several changes, including an increased underweight in Technology, which may have impacted their performance, while significantly increasing their weight in Health Care.
Mid Value managers adjusted their portfolios by decreasing the weight in Staples and Health Care and increasing their positions in and Industrials. Large cap funds saw smaller adjustments, with Large Core funds having a substantial overweight in Health Care and Communication Services.
Large Growth funds were significantly underweight in Technology heading into the fourth quarter, while Large Value funds slightly reduced their overweight position in Technology but still recorded a 7.4% overweight, marking the largest underweight position in Industrials to date.
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