U.S. mutual funds struggling to get ahead of passive indexes this year had a solution handed to them on a platter: Alibaba Group Holdings Ltd.
Among 215 large-cap growth funds in the U.S., about one-third hold shares of the New York-listed Chinese e-commerce giant, according to regulatory filings compiled by Bloomberg. They’ve returned an average 33% this year, compared with 24% from managers with no stake.
Among funds with BABA on board, 89% are beating their benchmarks in 2017, versus 52% without it.
The gap exists because Alibaba has surged 113% and isn’t in any of the biggest American equity indexes. The increase of $260 billion in market value would’ve been like adding a second Apple Inc. were Alibaba in the S&P 500. But since it isn’t, owning it has been gravy for mutual funds measured against it.
“Alibaba has been the shining star,” said Todd Rosenbluth, director of ETFs and mutual funds research at CFRA in New York. “Owning something that’s off the benchmark and doubled is going to be a significant tailwind for performance.”
The spread in returns highlights a rare instance when listing standards observed by the biggest index providers act almost like stock picking mistakes for investors in passive funds. S&P Dow Jones Indices ruled in September 2014 that Alibaba was ineligible for the best known U.S. equity gauges due to its China domicile. The stock is also excluded from benchmarks such as the Russell 1000 Index.