Which funds made a lot of money holding Nvidia stocks and who missed out on this opportunity? Let's take a look at the winners and losers of this investment competition.

The market capitalization of artificial intelligence chip manufacturer Nvidia (NVDA.O) surpassed $3 trillion in the second quarter. Because microchips are made of silicon, it is easy to assume that Nvidia's entire market value is built on sand. But nothing is more confident in artificial intelligence than Wall Street. In the past three months, Nvidia's stock has soared 37%, and it has risen nearly 200% in the past year.

Now the problem facing fund managers is whether this is a bubble. Considering Nvidia's market value of $3 trillion, which exceeds Sweden's net assets of $2.3 trillion (all assets minus all liabilities), Sweden is a country with a population of 10.5 million. It is almost equivalent to the domestic GDP of $3.1 trillion in Africa in 2023. Nvidia has 29,600 employees, and the value of each employee now exceeds $100 million.

Most of the funds that avoid or underweight Nvidia and other AI-related stocks have lagged behind in the past quarter, while funds with high weightings of these stocks have performed well. Therefore, the ProFunds Semiconductor UltraSector fund became the best-performing mutual fund this quarter, rising 31% and up 108% overall in 2024. The best-performing ETF this quarter was the Direxion Daily NVDA Bull 2X Shares, which rose 69% and more than 300% in 2024.

Anyone who believes that this hot performance can continue indefinitely may need to examine their mentality.

According to Morningstar data, Vanguard Wellington, a balanced fund worth $111 billion, established a position in Nvidia for the first time in March this year. Although it only accounts for 1.5%, it is one of the top ten holdings, which is a big position for this highly diversified fund. This is also historical.

Daniel Pozen is the manager of the fund's stock arbitrage, and he consciously changed the fund's previous value-oriented strategy. Nothing is more representative of growth than Nvidia, and Pozen admits in the fund's annual report in November 2023 that Nvidia's absence "obstructs relative returns." The fund's performance this year and this quarter is better than its peers, in part because of this transformation.

T. Rowe Price Capital Appreciation Fund, managed by the best balanced fund manager David Giroux, has begun to reduce its holdings of Nvidia stocks, reducing them by 26% in the first quarter of 2024. In the latest annual report letter of the fund in December, Giroux pointed out: "Although we currently hold Nvidia, the range of potential outcomes is quite large, and it is not the best risk-adjusted way to play artificial intelligence from now on." He is worried that competitors will reduce Nvidia's profit margin. The fund's latest disclosed Nvidia weight is 1.9%. So far, the Capital Appreciation Fund is still ahead of its peers, up 7.1%, while moderately allocated funds have risen 6.6%, but lagging behind the Vanguard Wellington Fund's 8.2%.

The most diversified stock funds affected by the AI ​​boom are large growth funds, which averaged 4.9% in the quarter and rose 17.6% to date in 2024. The best-performing mutual fund in this category this quarter is the HCM Tactical Growth, which has risen 11.6%, but its high fee rate of up to 2.63% and its frequent use of ETFs such as ProShares Ultra QQQ to leverage make it too risky for most investors and too expensive.

What is more interesting is the Fidelity OTC Fund with a size of $32 billion, which has a return rate of 10.4% in the previous quarter. Its Nvidia weight increased from 8.7% on April 30 to 10.8% on May 31. This is higher than the weight of the "thorn in the eye" of every active growth fund manager-the $285 billion Invesco QQQ trust fund-it holds 7.9% of Nvidia shares. The Fidelity OTC is one of the few large growth funds that can compete with the Nasdaq 100 ETF in the long run. It has achieved victory this year, with an increase of 24.9%, while the Nasdaq 100 ETF has only risen 17.3%. However, fidelity still lags behind QQQ's surreal 10-year annualized return of 18.7%, with a return rate of only 17.9%.

Perhaps more attractive than the Fidelity OTC is the Vanguard Primecap Fund, worth $76 billion, which reopened to new investors this quarter after being closed for 20 years. Morningstar classifies it as a large hybrid fund, although it functions more like a growth fund. The fund holds only 1.8% of Nvidia, but has recently performed well since it holds a 12.7% weight in Eli Lilly and Co (LLY.N), which has risen sharply due to its diabetes medication, Ozempic, which is purchased by the weight-conscious.

Like Fidelity OTC, Vanguard Primecap has been a consistently top-performing fund over the long term, but it has been unable to keep up with the returns of the QQQ ETF. According to Morningstar data, Primecap experienced $3.5 billion in outflows over the past year. If you're a fan of Nvidia, QQQ might be enough investment for you, as are other inexpensive growth ETFs like the iShares Russell Top 200 Growth, which has a 11.9% stake in Nvidia, or the more diversified Vanguard Growth, which has a 10.6% stake in Nvidia. Alternatively, you can also buy the stock directly.

A common saying among Wall Street professionals is never to fall in love with a stock. In the history of mutual funds, many fund managers have bet heavily on a single stock, only to lose everything. Perhaps the most famous is Robert Goldfarb of the Sequoia Fund, who held a large position in Valeant Pharmaceuticals, which subsequently collapsed.

Perhaps investors shouldn't let Nvidia be their nightmare. Other categories of funds have also performed well: Indian stock funds rose 9.3% this quarter; metals rose 6.2%; even utilities funds rose 3.5%. For stocks like Nvidia, it's hard to find a better diversified investment tool than a utility fund.