The Active Edge: How Growth Funds Surpassed the S&P 500 in 2024's AI Surge

In 2024, the relentless rise of artificial intelligence and tech-driven disruption created a stark divide between active and passive investing strategies. While the S&P 500 Index (SPX) returned a solid 25%, select actively managed growth funds like the Alger Focus Equity (ALCFX) and Morgan Stanley US Growth (MFGPX) delivered 51.8% and 41.2%, respectively. These results underscore a critical truth: in boom cycles fueled by megatrends, thematic focus and concentrated stock selection can generate outsized returns—even as passive investors settle for benchmark-linked gains.

The Active vs. Passive Dilemma: A 2024 Reality Check

Warren Buffett’s oft-repeated advice—“Put 90% of your money in an S&P 500 index fund and 10% in short-term government bonds”—has long been gospel for passive investors. But 2024 challenged this philosophy. While the S&P 500’s gains were broad-based (driven by AI, cloud computing, and e-commerce), its passive structure diluted the outsized returns of disruptors like Nvidia (+170%), AppLovin (+800%), and Cloudflare (+90%). Active managers who identified these “positive dynamic change” opportunities early captured the lion’s share of growth.

The Winning Formula: Tech Focus + Disciplined Conviction

The success of Alger Focus Equity and MS US Growth hinged on two pillars:
1. Sector Overweighting: Both funds aggressively bet on tech (43% of Alger’s portfolio) and consumer discretionary (32% of MS’s holdings), sectors that dominated 2024’s AI-driven rally.
2. High-Conviction Stock Picks: Alger’s 11.14% stake in Nvidia and 7.27% in The Trade Desk (MS) positioned them to profit from AI’s exponential growth. Meanwhile, MS’s 8.33% holding in DoorDash and 8.09% in Cloudflare exemplified bets on disruptive business models.

In contrast, the S&P 500’s broad diversification—spreading risk across 500 stocks—left passive investors underexposed to the 200%+ gains in select AI/tech stocks.

Risks? Yes. But the Reward-to-Risk Ratio Paid Off

Active management isn’t without trade-offs. Both funds exhibited higher volatility:
- Alger’s 1-year standard deviation was 20.9%, versus the S&P 500’s 12.3%.
- MS’s volatility hit 35.87%, reflecting its heavy exposure to high-beta growth stocks.

Yet, in a year where AI adoption surged and tech valuations boomed, these risks were justified. The 26.8% excess return of Alger Focus Equity over the S&P 500 (51.8% vs. 25%) made its higher volatility a calculated risk, not a drawback.

Buffett’s “90/10” Misses the AI Bull Market

Buffett’s index-and-bonds strategy is designed for long-term stability, not capturing hypergrowth cycles. In 2024, his approach would have missed the 400%+ upside in stocks like AppLovin and C3.ai, which Alger’s team identified early. Passive investors, tied to benchmarks, were left chasing returns instead of leading them.

The Takeaway: Active Management’s Role in Boom Cycles

The 2024 results prove that in thematic booms, active managers with sector focus, stock-picking discipline, and risk-aware concentration can dominate. For investors willing to tolerate higher volatility, these strategies offer a clear path to outperformance.

Final Call to Action

As AI reshapes industries and disruptors redefine markets, passive strategies will increasingly lag behind active managers who:
1. Identify thematic winners early (e.g., AI hardware, cybersecurity, cloud infrastructure).
2. Concentrate in high-conviction names without overdiversifying.
3. Adapt quickly to shifting growth dynamics.

The S&P 500’s 25% return may seem impressive, but it’s a fraction of what active strategies delivered in 2024. For investors aiming to capitalize on the next tech revolution, now is the time to embrace active management’s edge—before the next megatrend leaves passive investors behind.

Invest wisely, but don’t settle for average.