It’s no secret that active large-blend managers have struggled to beat their benchmarks in an era defined by just a handful of technology-related companies, yet their results are unlikely to improve even if these superstar stocks plummet back to earth.
As Morningstar’s Active-Passive Barometer indicates, just 6% of active large-blend funds survived and beat passive alternatives over the past 10 years ending June 30, 2025. That result is unsurprising: The US market is the most efficient and competitive in the world. But the challenge has become even more difficult thanks to the extraordinary performance of the Magnificent Seven stocks (Alphabet GOOG, Amazon.com AMZN, Apple AAPL, Meta Platforms META, Microsoft MSFT, Nvidia NVDA, and Tesla TSLA). These equities have posted eye-popping returns even as their market capitalizations have swelled, often defying expectations that their growth would level off.
Active funds that avoided or invested less than their benchmarks in this basket have been punished more severely than for omitting or downplaying any prior group of stocks. That’s attributable to a combination of their hefty benchmark weight and stellar results. For instance, Nvidia gained 171% in 2024 and averaged about a 5% weighting in the Morningstar US Large-Mid Cap Index. Its contribution to return of 4.8% represented nearly one-fifth of the index’s 25% rise. When the market’s largest companies post some of the best results, it’s difficult to capture the same impact through other means.
Many active managers have been hesitant to embrace the soaring Magnificent Seven for a variety of reasons, ranging from valuation or business concerns to a reluctance to stash so much capital in a handful of stocks. But while that positioning began as a minor footnote a decade ago, it has grown into a front-page headline. About half of active large-blend funds underweighted the Magnificent Seven as of June 2015, holding roughly the same weightings in those stocks as the benchmark, on average. But the gap soon grew. Some managers allocated inflows elsewhere, or, conversely, sold a disproportionate number of their Magnificent Seven shares to meet redemptions. Others simply sold them (or never bought them) on account of fundamental or valuation concerns. Whatever the reason, the differential ballooned to as wide as 8.3 percentage points at the end of 2024. During this period, an average of 71% of active large-blend funds underweighted the Magnificent Seven, using mostly year-end measurement points.
To be fair, some active large-blend funds, such as all-cap strategies and dividend funds, pursue mandates that don’t lend themselves to owning the Magnificent Seven at large weightings—or even at all. However, the powerful economic and stock market changes that have driven those equities have been a trial for those strategy types, too.
What If the Current Trend Unravels?
The average large-cap manager, consciously or not, is counting on a reversal in the fortunes of the Magnificent Seven to improve theirs. Unfortunately, even if those wishes come true, they won’t be able to celebrate that much. That’s because most funds still hold large absolute weightings in these stocks. As of March 31, 2025, active large-blend funds held, on average, 22% of assets in the Magnificent Seven versus 29% for the Morningstar US Large-Mid Cap Index.
That relatively modest differential means that even an apocalyptic scenario for the Magnificent Seven won’t lead to the substantial outperformance some may expect. If every stock in the market stayed flat for a day while each Magnificent Seven stock declined by 50%, the average large-cap fund would gain a mere 3.5% performance advantage.
That’s a big swing for a day, but a far cry from bailing out many active managers’ beleaguered long-term track records. This phenomenon exists because the Magnificent Seven have increased in value by so much over the past 10 years that each has more than doubled the market’s return. Even if they suffered a 50% haircut, all would still have beaten the index over the trailing 10-year period.
While the hypothetical data presented here considers the category’s aggregate positioning, a number of funds stand to materially benefit from the Magnificent Seven’s underperformance. Just over 50 of the 386 active large-blend funds as of March 2025 had less than 10% in the basket. These funds would enjoy a much bigger performance boost. But they’ve also performed much worse than other active funds in the category. Those with at least a decade of history lagged the Morningstar Large-Mid Cap Index by an average of 90 percentage points cumulatively over the 10-year period ended July 2025. Only one, VanEck Morningstar Wide Moat ETF, MOAT beat the index.
Perhaps in the future, spurred by a declining Magnificent Seven, active large-blend funds might fare better. But history suggests otherwise. Active funds struggled mightily for years before these stocks rose to prominence. In fact, the average active large-blend fund beat the Morningstar US Large-Mid Cap Index in just six of the 241 rolling three-year periods from the index’s 1992 inception through the end of 2014, with an average annualized return gap of 1.8%. The 3.5% gain in favor of the average active fund from the hypothetical collapse of the Magnificent Seven might give those six periods some company, but it isn’t enough to offset the historical active-return deficit for an extended period.
In short, even a change in market leadership of epic proportions won’t save the average active large-blend fund, nor is it powerful enough to be a durable boost in the future.
Data Definitions:
Funds in the large-blend Morningstar Category as of July 2025 are used in this analysis. They may not have always been in the large-blend category over the entire sample period.