Don McArthur, CFA® Senior Vice President, Senior Investment Strategist and Director of Equity Research
The overwhelming growth in the technology sector has made it more difficult for active managers to outperform
benchmarks
Historically, 45%1 of active managers have been able to beat benchmarks in large cap growth equities. But recently, just 15% of managers have been able to beat the benchmark.
Percent of Active Fund Managers Beating the Benchmark
How active fund managers beat benchmarks
Active managers aim to outperform market benchmarks such as the S&P 500 Index by actively selecting and
managing a portfolio of investments based on a set of characteristics they believe will produce outperformance. Over the past few decades, active managers have typically found success in large cap growth equities, investing in companies with large market capitalizations that are experiencing consistent capital appreciation. Value equity refers to stocks that are considered undervalued relative to their intrinsic worth which means their current market price is lower than what analysts or investors believe the company is truly worth based on fundamentals. Value equity has been a particularly successful strategy over the past five years for active managers with well over half of value investment managers beating their benchmark.
Value stock opportunity balances market
The technology and communications sectors together make up 44% of the S&P 500 Index. Magnificent 7 stocks have dominated the technology sector to a level such that only 15% of active managers in the large cap growth space have beat their index benchmark over the past five years. With just a few companies making up nearly all the revenue in the technology and communications sectors, it has become increasingly difficult for active managers to outperform their benchmark index.
Recently, active managers in value equity investing have experienced higher levels of outperformance. Value companies tend to be sensitive to interest rates, so the recent rise in rates after many years of very low rates has opened new opportunities for investors. The changing business environments and tariff impacts have also helped input-sensitive companies. On the value side of large cap stocks, 69% of active managers have beat their index. Small cap investing is seeing even more opportunity with 77% of active managers beating their benchmark over the past five years.
As adoption of artificial intelligence (AI) continues and companies like NVIDIA dominate in microchips, there is less opportunity for active managers to outperform in large cap investing. As investors look elsewhere, active managers are finding outperformance in other areas such as value equity investing. This shift creates more of a balance in the market between large cap growth and small cap value investments.
1 Average percentage of managers outperforming the Index over rolling 12/31/1996 to 12/31/2021.
The Chartered Financial Analyst® (CFA®) Charter is a designation granted by CFA Institute to individuals who have satisfied certain requirements, including
completion of the CFA Program and required years of acceptable work experience. Registered marks are the property of CFA Institute.
Past performance is no guarantee of future results, and the opinions and other information in the commentary are as of August 27, 2025. This summary is
intended to provide general information only and is reflective of the opinions of Commerce Trust. This material is not a recommendation of any particular security,
is not based on any particular financial situation or need and is not intended to replace the advice of a qualified attorney, tax advisor or investment professional.
Diversification does not guarantee a profit or protect against all risk. Commerce Trust does not provide tax advice or legal advice to customers. Consult a tax
specialist regarding tax implications related to any product and specific financial situation. Data contained herein from third-party providers is obtained from what
are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.
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