Do a Fund’s Top 10 Holdings Tell Us Enough?

Key takeaways

A fund's positioning relative to its benchmark is what drives excess return and/or alpha.
Capitalization-weighted indices, particularly large-cap indices, have grown top heavy, making the traditional top 10 holdings list a less meaningful indicator of a portfolio's sources of excess return.
"Active top 10" is a list of top relative positions – the largest absolute variance with the benchmark – which can be a useful tool in analyzing portfolio managers' performance.

In his book Moneyball: The Art of Winning an Unfair Game, Michael Lewis shows readers that sometimes conventional wisdom and standard metrics may not be the most effective measurement tools. While the book focused on analyzing and selecting players for a Major League Baseball (MLB) team, its lessons could also apply to how we evaluate funds.

A shift in perspective

For more than 100 years, baseball teams evaluated players using the same statistics, including batting averages and runs batted in, along with more intangible, subjective factors meant to reveal what makes a player unique.

Moneyball tells the story of how Oakland Athletics General Manager Billy Beane, by looking at player performance from a different perspective, was able to find relatively undervalued players and build a competitive roster that was much less expensive than those fielded by the league’s juggernauts.

It all began with a different set of measurements.

Large-cap indices are dominated by a few names

Ballooning player contracts made it difficult for all but the richest MLB teams to build and sustain competitive rosters, forcing mid- and small-market teams like the Athletics to find other, untapped sources of player value. We believe there is a similar phenomenon occurring right now among fund investors. There is a growing need among these investors to broaden their statistical purview, especially in the increasingly top-heavy large-cap growth universe.

Index concentration increasingly drives market dynamics – a small number of stocks are commanding a larger and larger portion of an index’s market capitalization. As this trend accelerates, investors are learning that they need to re-evaluate how they compare investment options, particularly when it comes to actively managed funds. A portfolio’s top 10 holdings, which may closely align to its benchmark index, omit an important part of the story: their active positioning, the difference between the portfolio weight and benchmark weight in a stock.

Calculating active weight

	Portfolio weight	-	Benchmark weight	=	Active weight
Security 1	6.00%	-	6.75%	=	-0.75%
Security 2	8.00%	-	5.50%	=	2.50%

We believe active positioning may be a key metric in gauging the value of an active investment.

Just a few years ago, the top 10 holdings of a large-cap growth fund could be used to determine the fund’s top active holdings. That dynamic doesn’t hold true anymore, as large-cap indices have become increasingly concentrated. By the end of 2025, the top five companies (out of 390) in the Russell 1000^® Growth Index made up 44% of the market capitalization of the entire index. As a result, it has become harder to determine how a portfolio’s top 10 stocks affect its excess return.

Russell 1000 Growth Index concentration

Why? Because an active large-cap portfolio will often invest in many of the names that dominate that space (indeed, it would be difficult to be a pure large-cap growth portfolio otherwise). However, the traditional top 10 holdings list often does not represent a portfolio manager’s highest-conviction stock selections or source of excess return. The weightings of individual stocks may tell a more complete story of relative performance.

This idea isn’t new. We generally refer to a portfolio’s sector weights in terms of being overweight or underweight to the benchmark. We believe it’s important to look at individual holdings the same way.

The “active top 10”: A more revealing metric

Any detailed analysis of an equity fund, in our view, should start by examining the top active weights to see where the fund manager has decided to stray from benchmark positions. The traditional top 10 holdings list has long been a component of fund literature, but it offers limited insight for alpha-seeking investors.

Identifying the top active positions in a portfolio isn’t particularly difficult, but it means comparing a portfolio’s absolute security weights against the benchmark weights for those securities. By evaluating a portfolio’s active weights, investors can more directly assess the effect of active management decisions on a portfolio’s relative performance.

In the example below, we look at a hypothetical large-cap growth portfolio. As one would expect, the portfolio owns many of the largest companies in the benchmark, but differences begin to emerge upon more careful analysis of relative position sizes. Overweighting (or underweighting) an otherwise large position could have a significant effect on relative performance, which wouldn’t necessarily be apparent upon simply seeing that the name is included in both the portfolio and the benchmark’s top 10 listing. Although Apple is the fourth-largest absolute weight in the portfolio, it is the largest underweight holding (and largest active position). That means that when Apple’s stock underperforms the market, the portfolio’s excess return and alpha would actually increase (and vice versa).

For alpha-seeking investors, the active top 10 list is a much better starting point to help understand relative performance expectations, in our view.

Case study: Hypothetical large-cap growth portfolio

In the active top 10 (above right), the only overweight position in an index top 10 holding is Visa. The other nine names are either significant underweight positions (such as Apple, Meta Platforms, and Tesla) or securities not included in the index top 10.

*Active weight is ranked by showing the absolute value of the portfolio’s weight compared to the benchmark weight for each security. These portfolios and weightings are hypothetical. The securities discussed should not be construed as investment recommendations and may or may not be held in the portfolio. Examples given are for illustrative purposes only. They were selected to illustrate the active weight of a hypothetical portfolio compared to the top 10 holdings of the index. This is not a recommendation to buy or sell any security.

Finding insights in active positioning

Investors seeking alpha rely on active managers to make investment decisions based on research and market expertise. The increasing concentration of a handful of names at the top of large-cap indices may force these investors to change how they evaluate funds. Many sophisticated metrics are available to investors, but we believe simply shifting the focus from a fund’s top 10 holdings (and the absolute weights of those holdings) to the top active positions in a fund’s portfolio may help us better understand the potential benefits of active investing.

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Do a Fund’s Top 10 Holdings Tell Us Enough?

Key takeaways

A shift in perspective

Large-cap indices are dominated by a few names

Calculating active weight

Russell 1000 Growth Index concentration

The “active top 10”: A more revealing metric

Case study: Hypothetical large-cap growth portfolio

Finding insights in active positioning

Disclosures

Policies

A shift in perspective

Large-cap indices are dominated by a few names

Calculating active weight

The “active top 10”: A more revealing metric

Case study: Hypothetical large-cap growth portfolio

Finding insights in active positioning

Disclosures

Policies

​

Do a Fund’s Top 10 Holdings Tell Us Enough?

Key takeaways

A shift in perspective

​

Large-cap indices are dominated by a few names

Calculating active weight

​

Russell 1000 Growth Index concentration

​

The “active top 10”: A more revealing metric

​

Case study: Hypothetical large-cap growth portfolio

​

​

Finding insights in active positioning

​

​

​

A shift in perspective

Large-cap indices are dominated by a few names

Calculating active weight

The “active top 10”: A more revealing metric

Case study: Hypothetical large-cap growth portfolio

Finding insights in active positioning

Disclosures

Policies