Nvidia investor dilemma: how much is too much in a stock portfolio?
Funds' Nvidia positions have grown as the stock has soared, increasing risk
US equity markets are increasingly powered by handful of giant tech stocks
Actively managed funds that held Nvidia trounced peers that didn’t hold it so far this year
By David Randall
NEW YORK, July 15 (Reuters) -Outsized positions in artificial intelligence darling Nvidia NVDA.O have boosted portfolio managers' returns this year but the bets stand to magnify risk if the chipmaker's red-hot shares see a reversal of fortune.
Nvidia shares are up about 785% since the start of 2023 and have risen some 160% this year alone, boosted by demand for its chips, seen as the gold standard in the AI field. Nvidia briefly became the world's most valuable company in June before a dip in its shares returned that title to Microsoft.
Asset managers’ holdings of the chipmaker have swelled alongside its stock price. Morningstar data showed that 355 actively managed funds held Nvidia positions that totaled 5% or more of their assets at the end of the first quarter, compared to just 108 funds in the same period last year. Funds can maintain large positions in a single holding for a variety of reasons, whether to maximize profits or to track a stock’s weight in an index to which the fund is benchmarked.
“There's a mindset among some portfolio managers that they missed the boat on Apple or Microsoft and they don't want to be wrong on AI," said Jack Shannon, a senior Morningstar analyst. "They don't want to sell.”
The oversized positions in Nvidia are another example of how investors have cast their lots with a handful of massive growth stocks, leading to one of the most concentrated market advances ever. Nvidia alone has accounted for around a third of the S&P 500’s nearly 17% gain this year, according to S&P Dow Jones Indices.
Overall, markets are the third-narrowest since 1986, with only 24% of stocks in the S&P 500 outperforming the index in the first half, according to BofA Global Research strategists.
Funds that owned Nvidia have so far reaped the benefits. Actively-managed U.S. equity funds that held the stock were up 16.3% on average over the first six months of 2024, compared with an average 5.7% return among those that did not own Nvidia, Morningstar data showed.
Yet concentration in a single stock can hurt investors if Nvidia shares hit a rough patch. While the average price target for the stock among analysts stands at $133.45, some 3% above its current level, according to LSEG data, some market participants point to increasing competition, an expected balance between supply and demand as Nvidia ramps up production, and the company's rich valuation as possible reasons for a downturn.
The stock trades at 39.3 times forward earnings, about 50% more than its industry median, according to LSEG.
“Does having 6% or more of your portfolio in one stock create outsized risks? The answer is obviously, yes,” said Phil Orlando, chief equity market strategist at Federated Hermes. “The fact that one stock did take off like a rocket ship doesn’t mean that it was smart ... to have that many eggs in one basket.”
Investors got a taste of how concentrated positions can be a two-way street last week, following a sharp, one-day rotation out of Big Tech stocks sparked by cooler inflation data. Nvidia fell nearly 6% on Thursday, its biggest daily drop in more than two weeks, while the tech-heavy Nasdaq 100 lost about 2.2%. Both pared those losses the following day.
‘TWINGE OF REGRET’
Technology-sector funds overall have the largest weightings in Nvidia, with four Fidelity funds each holding more than 18% of their assets in the stock, according to Morningstar. Yet other, more diversified, funds appear to be taking on similar risks, with the Baron Fifth Avenue Growth fund holding nearly 15% of its portfolio in Nvidia and the Fidelity Blue Chip Growth fund holding about 13% of its portfolio in the stock. Both firms declined to comment.
Anthony Zackery, a portfolio manager at Zevenbergen Capital Investments, has owned Nvidia since 2016 and continues to maintain a core position, though he has trimmed it periodically to keep within his firm’s risk-tolerance guidelines. The fund can hold as much as 13% of one stock in growth portfolios to keep in line with weightings in its benchmark, the Russell 3000 Growth Index.
"This is a company that is at the forefront of the next trend in technology," he said.
Some who sold out entirely, on the other hand, wish they had held on longer.
Kevin Landis, chief investment officer at Firsthand Capital Management, said he was "prudent" and took profits in 2020 in a Nvidia position he owned for several years. Still, he can’t help thinking about the gains he missed out on.
"I can’t look at any of my screens now without feeling a twinge of regret," he said.
Nvidia vs. the S&P 500 https://tmsnrt.rs/3S6eMWK
Nvidia's growing stock market dominance https://tmsnrt.rs/3Whqhgy
Reporting by David Randall; Editing by Ira Iosebashvili and Rod Nickel
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تازہ ترين خبريں
دستبرداری: XM Group کے ادارے ہماری آن لائن تجارت کی سہولت تک صرف عملدرآمد کی خدمت اور رسائی مہیا کرتے ہیں، کسی شخص کو ویب سائٹ پر یا اس کے ذریعے دستیاب کانٹینٹ کو دیکھنے اور/یا استعمال کرنے کی اجازت دیتا ہے، اس پر تبدیل یا توسیع کا ارادہ نہیں ہے ، اور نہ ہی یہ تبدیل ہوتا ہے یا اس پر وسعت کریں۔ اس طرح کی رسائی اور استعمال ہمیشہ مشروط ہوتا ہے: (i) شرائط و ضوابط؛ (ii) خطرہ انتباہات؛ اور (iii) مکمل دستبرداری۔ لہذا اس طرح کے مواد کو عام معلومات سے زیادہ کے طور پر فراہم کیا جاتا ہے۔ خاص طور پر، براہ کرم آگاہ رہیں کہ ہماری آن لائن تجارت کی سہولت کے مندرجات نہ تو کوئی درخواست ہے، اور نہ ہی فنانشل مارکیٹ میں کوئی لین دین داخل کرنے کی پیش کش ہے۔ کسی بھی فنانشل مارکیٹ میں تجارت میں آپ کے سرمائے کے لئے ایک خاص سطح کا خطرہ ہوتا ہے۔
ہماری آن لائن تجارتی سہولت پر شائع ہونے والے تمام مٹیریل کا مقصد صرف تعلیمی/معلوماتی مقاصد کے لئے ہے، اور اس میں شامل نہیں ہے — اور نہ ہی اسے فنانشل، سرمایہ کاری ٹیکس یا تجارتی مشورے اور سفارشات؛ یا ہماری تجارتی قیمتوں کا ریکارڈ؛ یا کسی بھی فنانشل انسٹرومنٹ میں لین دین کی پیشکش؛ یا اسکے لئے مانگ؛ یا غیر متنازعہ مالی تشہیرات پر مشتمل سمجھا جانا چاہئے۔
کوئی تھرڈ پارٹی کانٹینٹ، نیز XM کے ذریعہ تیار کردہ کانٹینٹ، جیسے: راۓ، خبریں، تحقیق، تجزیہ، قیمتیں اور دیگر معلومات یا اس ویب سائٹ پر مشتمل تھرڈ پارٹی کے سائٹس کے لنکس کو "جیسے ہے" کی بنیاد پر فراہم کیا جاتا ہے، عام مارکیٹ کی تفسیر کے طور پر، اور سرمایہ کاری کے مشورے کو تشکیل نہ دیں۔ اس حد تک کہ کسی بھی کانٹینٹ کو سرمایہ کاری کی تحقیقات کے طور پر سمجھا جاتا ہے، آپ کو نوٹ کرنا اور قبول کرنا ہوگا کہ یہ کانٹینٹ سرمایہ کاری کی تحقیق کی آزادی کو فروغ دینے کے لئے ڈیزائن کردہ قانونی تقاضوں کے مطابق نہیں ہے اور تیار نہیں کیا گیا ہے، اسی طرح، اس پر غور کیا جائے گا بطور متعلقہ قوانین اور ضوابط کے تحت مارکیٹنگ مواصلات۔ براہ کرم یقینی بنائیں کہ آپ غیر آزاد سرمایہ کاری سے متعلق ہماری اطلاع کو پڑھ اور سمجھ چکے ہیں۔ مذکورہ بالا معلومات کے بارے میں تحقیق اور رسک وارننگ ، جس تک رسائی یہاں حاصل کی جا سکتی ہے۔