The stocks that active managers love most are dragging them down

The stocks active fund managers love the most are dragging them down.

Active managers are the Wall Street pros load up on specific stocks and sectors in an effort to beat some benchmark like the S&P 500.

Credit Suisse’s latest research note on fund ownership among active managers identifies 25 stocks that are the most owned, or “Darlings.” Apple, Microsoft, Google and JPMorgan are the top four stocks on their list, and they all saw a significant increase in ownership during the fourth quarter of 2014.

“As a general rule, we tend to be wary of owning too many Darlings given less opportunity for differentiation,” the analysts wrote. “We recommend reducing exposure due to: (1) less opportunity for differentiation, (2) underperformance over the life of our study, (3) outflows from actively managed funds, which may continue be a headwind retail investor rotation out of the US continues.”

And via these two charts, they note that these stocks have been a drag on fund managers.

This first chart shows that the 25 most popular “Darlings” have been laggards for the last two and a half years.

And they have underperformed stocks that saw the largest increase in large cap fund ownership (rising stars), the largest decline (fading stars,) and the small-to-medium cap stocks that are most popular in large cap funds (cousins.)

Active managers may need to reassess their strategies.

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