Active US funds lag S&P 500 despite high market dispersion
67% of active US large-cap funds underperformed the S&P 500 in the first half of 2026, despite record stock dispersion. The underperformance is attributed to rapid sector rotation and high fees.
S&P Dow Jones Indices reported that 67% of active US large-cap funds underperformed the S&P 500 in the first half of 2026. This occurred despite stock dispersion being the highest since 2008 and the Magnificent Seven's index weight dropping from nearly 35% to 32%. The top five S&P 500 performers were chip and hardware stocks like Micron and Sundisk, with no Magnificent Seven members included. Mid-cap funds saw 74% underperform their index, and small-cap funds 69%. Growth funds lagged significantly, returning 6% on average compared to their 12% benchmark. Over 15 years, zero of 339 tracked US large-cap growth funds outperformed their index, and over 20 years, 93% of large US funds lagged the S&P 500. The underperformance is attributed to rapid sector rotation, such as energy leading in Q1 and tech in Q2, and high fees. The data suggests that active management fails to deliver value even in ideal market conditions, reinforcing the argument for index funds for most investors.