Active Fund Managers Underperform Due to AI Underweighting

Active stock mutual-fund and ETF managers are experiencing significant underperformance compared to their benchmarks in 2026. Data from Morningstar indicates that 70% of active managers underperformed through October 8, primarily because they remained underweight in artificial-intelligence stocks relative to the S&P 500.

Despite record levels of stock return dispersion that typically favor active stock picking, managers have struggled to size positions correctly in a crowded market. Some, like Timothy Casaletto of Wellington Management, argue that the AI trade will eventually collapse due to potential data-center build-out delays and rising borrowing costs for neocloud companies. Recent volatility in speculative shares, including a decline in CoreWeave, has reinforced these skeptical views.

Other managers have intentionally avoided the AI frenzy to seek value in overlooked companies. Mike Nicolas of the Oakmark Investor Fund is betting on attractively priced stocks left behind by the boom, while Manish Gupta of First Eagle Investments has maintained a cautious approach toward speculative AI sectors, noting that these concerns are now manifesting in the market.