An active fund holding approximately 800 distinct stock positions has delivered returns exceeding major market indexes — an outcome that cuts against the received wisdom that broadly diversified active portfolios simply converge to index-like performance.
The broader trend in active management makes this harder to dismiss as noise. Roughly 95 percent of active large-cap managers fail to beat their benchmark net of fees. The primary culprits are well-documented: expense ratios typically running 70 to 80 basis points, and the structural tendency of large-holding-count funds to become closet indexes. A Morningstar analysis found that a do-nothing index, stripped of fees, marginally outperformed the average active fund.
The math behind closet indexing is straightforward. When five to 10 stocks drive the majority of index gains, a manager holding 30 or more positions dilutes the return impact of any winning selection. At 800 positions, that dilution effect is severe.
The TCAF fund's expense ratio of approximately 0.31 percent is the critical variable. That figure sits roughly 40 to 50 basis points below the active-fund average — a structural cost advantage large enough to convert near-index gross returns into index-beating net returns. Fee drag eliminated, the breadth of the portfolio stops being a liability.
Concentration offers a different path to outperformance. One fund holds just 23 stocks, with Tesla as its top position at nearly one-fourth of assets — a conviction-weighted approach that can generate alpha when the high-confidence bets pay off. BFGFX, a mid-cap growth fund running a similarly concentrated book, returned an annualized 21.5 percent over 10 years, landing it in the top two percent of its category. Small-cap funds provide additional evidence that disciplined stock selection can overcome benchmark headwinds.
The benchmark TCAF is clearing is not a soft target. The Russell 1000 Growth index holds approximately 368 stocks. Its median market capitalization is $1.3 trillion, its constituents have averaged 33.7 percent annual earnings growth and trade at an average price-to-earnings ratio of 36.4. Outperforming that index with a portfolio more than twice as large is a meaningful data point.
Taken together, the evidence suggests fee structure can be a more decisive driver of net outperformance than portfolio concentration — particularly in market regimes where a narrow set of mega-cap names accounts for the bulk of index returns.
