These Funds Have Taken Big Hits in the Tech Stock Rout

With the stock market’s sudden sharp turn lower, many mutual funds that rode the technology rally have taken a hit.

Even before Monday’s rout, some funds had suffered double-digit losses since mid-June as mega-cap tech stocks rolled over. That includes funds that have been top performers, such as Fidelity Blue Chip Growth FBCGX and Alger Capital Appreciation ACIZX.

Here’s a look at 10 funds that have suffered some of the biggest losses since the Morningstar US Technology Index hit its most recent peak on July 10.

Performance data for this article was based on the lowest-cost share class for each fund. Some funds may be listed with share classes not accessible to individual investors outside of retirement plans. The individual investor versions of those funds may carry higher fees, which reduces returns to shareholders.

Tech Stocks Tripped Up

The slump in growth stocks, especially tech names, has flipped the dominant trends of recent fund performance.

2023 was a banner year for the sector, with the US Technology Index returning 59.1%, the most of any year in the last decade. This run continued for the first half of this year, with the index rising nearly 26% by the end of June. That performance was particularly concentrated in the semiconductor industry, with the Morningstar US Semiconductor Index up 106.5% in 2023 and 71.6% this year through the end of June. This rally played a key role in lifting growth stocks in general. The Morningstar US Large-Mid Cap Broad Growth Index—which is 48% tech stocks—gained more than 40% in 2023. This year through the end of June, the growth index was up more than 20%.

Things took a turn in July. After rising during the first week, tech stocks and the Large Growth Index peaked on July 10. Through the end of Aug. 5, the Tech Index dropped 14.7%, with the Semiconductor Index dropping even further to 24.0%. The overall market as measured by the Morningstar US Market Index topped out on July 16.

Funds Hit by Tech Stock Declines

For a look at which funds have taken the biggest losses since the market turned, we screened for US stock funds that carry a Morningstar Medalist Rating and hold at least $100 million in assets during the July 10-Aug. 2 period. Performance data is based on the lowest-cost share class and ran from July 10 through Aug. 2. Returns and holdings numbers were updated through Aug. 5.

The 10 worst-hit funds are all in Morningstar’s Large Growth Category, and each holds a higher weight in tech stocks than the category’s 41% average. That ranged from a 2.8% overweighting at PGIM Jennison Growth TBDZX to a whopping 16.1% overweighting at Baron Fifth Avenue Growth BFTHX. All 10 had at least a 43.8% allocation to the tech sector and double-digit allocations to semiconductor companies.

The $456 million HCM Defender 100 Index ETF QQH suffered the biggest losses during the period, falling by 11.5%. As of Aug. 5, the fund’s largest holdings were Apple AAPL, Microsoft MSFT, Meta Platforms META, and Nvidia NVDA, comprising 34.9% of its portfolio. The fund had a 55.8% allocation to the tech sector.

The bottom 10 funds varied widely in terms of portfolio concentration. Fidelity Blue Chip Growth has a “sprawling portfolio of more than 200 stocks,” says Morningstar strategist Robby Greengold. However, it has “distinct industry allocations,” he notes, pointing to its 17% allocation to semiconductor firms as of this February. He cites “the fund’s hefty allocation” as central to its performance woes over the past month. Meanwhile, Alger Capital Appreciation has a notable single-stock concentration. While it holds over 70 stocks, it has “a staggering 15% of assets in Microsoft,” Morningstar research analyst Andrew Redden wrote.

The performance of these funds also suffered relative to their category, reflecting a significant turn for the worse. All their category percentiles based on one-month returns were at least 20 percentage points below their one-year trailing return rankings. Alger Capital Appreciate Fund saw the largest difference, ranking in the 4th percentile of the Large Growth category by one-year returns but 94th by one-month returns.

Four of these funds were managed by Jennison Associates; it subadvises the three PGIM Jennison funds and Harbor Capital Appreciation HCAIX. “[Jennison’s] high-growth style means they are heavily exposed to stocks that benefited from the AI exuberance,” says Morningstar manager research analyst Chris Tate. “Nvidia and the like are the stocks that have been hit harder than most. Jennison targets companies with high growth expectations and market-leading companies with durable competitive advantages. But that tends to narrow its focus to tech, comm services, and consumer cyclicals. They have tended to be more growth-skewed than the average large-growth fund over time.”

With PGIM Jennison Growth, that means its “50-to-60-stock portfolio is made of many fast-growing companies with premium valuations and often high volatility whose share prices can falter when growth fundamentals decelerate,” Tate explains. “This volatile posture promotes an uneven performance profile.”