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(Bloomberg) -- Investments ranging from gold to European banks helped a handful of global fund managers beat the market last year even while largely avoiding the richly valued Magnificent Seven stocks.
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The seven account for about 20% of the MSCI All-Country World Index, a benchmark for global investing, and the group soared last year, led by Nvidia Corp. and Meta Platforms Inc. So the odds were stacked against any stock pickers who held a lower percentage of the Magnificent Seven than their index weight.
Indeed, among the 220 funds that invest in global large-cap stocks and compare themselves to the MSCI All-Country World Index, just 9% managed to outperform the index’s return of about 18% last year while being underweight the big seven, according to data from Morningstar.
The winners are a good example of the advantages investors have when they’re not hemmed in by limits on where, and in what types of stocks, they can invest. And with the Magnificent Seven finally underperforming the broader market as their growth slows, the fund managers’ holdings provide ideas of where to look for future outperformance. “Global is a big place -- we can play in the biggest sandbox in the world. We don't have to limit ourselves just to American big, well-owned, well-known companies. We think we can find an edge elsewhere,” says Alexander Umansky of Baron Capital, whose top holdings include Latin American e-commerce giant MercadoLibre Inc. and South Korea's Coupang Inc.
Here’s a look at how some funds managed to outperform the index while underweighting the Magnificent Seven:
Morgan Stanley Global Opportunity Fund
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The track record: The $14 billion fund run by Kristian Heugh returned 26% last year, beating 89% of peers.
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What worked last year: Liberty Media Corp., owner of the Formula One racing series that has seen soaring viewership in America. Heugh says the company can make more money from the US market and it has more than 80% of its revenue locked in through multiyear contracts. The stock jumped 37% in the second half. The fund also took a stake in Taiwan Semiconductor Manufacturing Co., with Heugh seeing geopolitical risks more than priced into the chipmaker’s share price.
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View on Magnificent Seven: Owns only Meta and Amazon out of the seven stocks, with Meta as the top holding as of the end of January. Heugh sees the Facebook parent as a prime beneficiary of AI as the technology will make the company more efficient and serve ads better. Its huge spending on AI projects -- as much as $65 billion this year -- "isn't wasted capex," he says.