Gavin Baker+ Your Authors @GavinSBaker Husband, Becky Painter. CIO, Atreides Management. Former PM, Fidelity OTC fund. No investment advice, views all my own. gavin-s-baker.com/ May. 05, 2020 1 min read + Your Authors

1) Fascinating that the 5/25 rule is becoming an issue for growth oriented mutual funds.

MSFT, AAPL and AMZN are almost 25% of the Russell 1000 growth index and each is over a 5% weighting which means it is effectively impossible to overweight all of them.

2) Also makes it difficult to be overweight any two of MSFT, AAPL and/or AMZN while having significant overweights in 2-3%ish index constituents like FB, GOOG/GOOGL, V.

3) Obviously there is no 5/25 rule for indices so this dynamic can get much worse and make it hard for growth funds to outperform their indices *if* the mega cap tech stocks continue outperforming.

4) This happened with Nortel in the Canadian market in 2000 and it was super painful for Canadian active fund managers. Sidenote: did not end well for Nortel.

Obviously there are many differences today vs. 2000; most notably valuation.


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