Two-Thirds of Funds Trail the S&P: A Portfolio Manager’s Take on This Week
Key Takeaways: About 66% of large-cap US equity funds have trailed the S&P 500 over the last three years. On this week’s Cents of Things, I explain how I think about that as a portfolio manager: an index core, a disciplined sleeve of individual names, and cash ready for the days the market hands you a gift.
I manage money for real families, so I look at a week like this one through a simple lens: what changes how I build and hold portfolios, and what is just noise. Here is how I read it.
If most funds trail the index, why not just buy the index?
The chart we showed this week is humbling. Over three years of double-digit index gains, roughly two-thirds of large-cap US funds underperformed the S&P 500. So yes, most people need a low-cost index piece as the foundation, because that is how you make sure you keep up with the market.
But indexing everything has a cost too. If you own only the broad market, you will never do better than the broad market. As I tell my clients, the answer is not all-or-nothing. It is an index core plus a smaller, high-conviction sleeve of the best-of-the-best, sized to your stage of life.
How do I think about individual stocks like NVIDIA?
The semis sold off this week, and NVIDIA was trading near 21 times earnings while growing about 56% a year. For a long-term holder who is not already overweight, that kind of pullback is where you can nibble on the way down.
The catch is volatility. There is a lot of EKG in these names. I own them for clients, but I remind people that you have to be able to look at that line now and then, not every day, or it will talk you out of a good long-term position.
Why keep cash in a market near highs?
Because the market hands you gifts on ugly days, and you can only take them if you have dry powder. Look at IBM this week, which had one of its worst days ever, down around 25%. Big Blue is still a strong company. On a day like that, if you were a buyer, that is when you want to be ready.
So during earnings season I like to keep a little cash on hand. Not to time the market, but to be a buyer when a good company gets whacked over a single print.
What about the hot IPO everyone is asking about?
A client called last week and asked if it was finally time to buy SpaceX. My answer was not yet. As we spoke, it was already trading below its issue price of 135, down around 134.65.
This is a pattern worth remembering. The most hyped names often carry so much excitement into the debut that the stock struggles even when the company is excellent. It can be a great business in five years and still be a poor entry point today. Patience is a position.
What is the economy telling a portfolio manager right now?
A mixed but not scary picture. Producer prices came in cooler than expected, regional manufacturing surveys ran hot, and jobless claims stayed low. The soft spot is housing, where higher rates and the lock-in effect of old low-rate mortgages have frozen a lot of activity.
For portfolios, that argues for staying invested and selective rather than making a big macro bet. The consumer-confidence reading sitting near lows while the S&P sits near highs is a reminder that sentiment and price often disagree, and price usually wins over time.
One sourced, dated data point
Per the discussion on The Cents of Things with Jeff Kikel and me, recorded the week of July 16, 2026, roughly 66% of large-cap US equity funds have underperformed the S&P 500 over the trailing three years, a stretch that saw double-digit annual index gains.
Frequently asked questions
- Should I only own index funds? For many people the index is the right core holding. Whether you add individual names depends on your willingness to do the work and your risk tolerance. Talk with your own advisor about the right mix for you.
- How much cash should I hold? There is no single right number. I keep some dry powder during earnings season so I can buy quality names on sharp down days, but the right level depends on your goals, timeline, and temperament.
- Is NVIDIA or the semiconductor group a buy after the pullback? We noted the valuation reset on the show, but this is not individualized advice. For a long-term investor who is not overweight, pullbacks can be opportunities. Size any position to your plan.
- Why did IBM fall so much in one day? A disappointing report can hit a large, widely held stock hard, in this case, around 25%. It is also why holding some cash lets disciplined investors take advantage of those moments.
- Does weak consumer confidence mean I should sell? Not on its own. Sentiment and market prices frequently diverge. A review is for perspective, not a trading signal. Consult your own professional before acting.
The Bottom Line
The market rewarded staying invested and being selective again this week. Build on a low-cost index core, add a disciplined sleeve of quality names sized to your life stage, and keep enough cash to act when the market overreacts. If you want a clear, twice-weekly read on the markets, follow The Cents of Things and I will see you in the next one.
Jeff Kikel is the founder and Chief Investment Officer of Freedom Day Wealth Management. This article is for education and information only. It is not individualized investment, tax, or legal advice, and it is not a recommendation to buy or sell any security. Figures reflect what was discussed on the episode as of the recording date and can change. No outcomes are guaranteed. Consult your own licensed professional before making decisions.
Meta description: Two-thirds of large-cap funds trail the S&P 500. A portfolio manager on index cores, individual stocks, cash, and this week’s market.
