These 3 Growth Funds Don’t Own Nvidia—and Their Returns Show It

While Nvidia’s NVDA massive rally over the past year has fueled big gains in many funds focused on growth stocks, a handful have missed out.

Out of 74 actively managed large growth funds that carry Morningstar Medalist Ratings of Gold, Silver, or Bronze, only three hold no shares of Nvidia: the Calvert Equity Fund CSIEX, the Capital Group US Equity Fund CUSEX, and the Segall Bryant & Hamill All Cap Fund SBHAX. Largely because of that bet, investors in these funds have seen returns well below those of the average fund in the category.

Since Nvidia’s earnings release on May 24, 2023, its stock has rocketed 268%, making up 5.1 percentage points of the 26.5% rise in the Morningstar US Market Index. This ascent kicked off the current boom in artificial intelligence stocks, with the company announcing a massive $4.3 billion in data center revenue fueled by interest in its chips.

Nvidia now stands as the second-largest stock in the S&P 500, with a 6.6% weighting in the Morningstar US Large Growth Index and a market capitalization of roughly $3 trillion. Combined with the fact that the firm’s earnings per share grew by 630% year over year, this puts it on the extreme end of large-cap growth stocks.

Growth Funds Riding High On Nividia

Nvidia produces graphics processing units, which were traditionally used for video games and graphic design. Over the past several years, the demand for GPUs has exploded because they are useful for cryptocurrency mining and training machine learning models. AI-based data center revenue has eclipsed revenue from Nvidia’s traditional gaming market.

Investor enthusiasm around AI, especially concerning Nvidia, has been a major factor driving strong performance among large growth funds. Of the 74 actively managed medalist-rated US stock funds in Morningstar’s large growth category with more than 50 holdings and $100 million in assets under management, a mere nine hold less than 5% of their portfolio in Nvidia. Only these three funds don’t hold the stock at all.

Growth Funds Without Nvidia

Morningstar’s William Rocco writes that it’s “not totally surprising” that Calvert Equity doesn’t own Nvidia. He points out that while it’s a big portion of the market, Nvidia “has been roaring for however long it has, it’s not going to be that attractively valued … for funds that are consistently more price-conscious.” Calvert was the lowest-performing fund out of the 74 examined, with a 16% return since Nvidia’s May 2023 earnings, compared with the 35.2% return of the average large growth fund.

In their March commentary, Calvert’s managers point to the absence of the stock as one reason the fund has struggled: “Not owning shares of chip maker Nvidia and social media behemoth Meta proved a material headwind to relative Fund performance.” The report continues: “Nvidia’s boom-and-bust earnings record is inconsistent with our preference for more stable growth companies.”

Stephen Welch highlights that, like the other two funds, the Capital Group fund is on the border between the large blend and large growth categories, and he considers it more of a blend strategy than a growth one. It was the 7th-lowest-performing fund in the group, with a 22% return since Nvidia’s May 2023 earnings. The Segall Bryant fund was third-lowest, returning 19.4% over that period.

The poor performance of these three funds contrasts with 2022, when their comparative tilt toward value aided them. Segall was in the 10th percentile of funds in the category that year, Calvert was in the 6th percentile, and the Capital Group fund was in the 2nd percentile. Growth companies outperformed in 2023, propelled by Nvidia and the other AI-powered growth companies that dominated the stock market’s rally that year. All three funds sunk to the 95th percentile or lower in 2023.