Value funds adapt stock selection to AI-driven market shifts

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Value funds adapt to AI market

Highlights

MAI Focused Equity Portfolio, holding about 22 stocks, is outperforming the market by 8 percentage points this year and beat it in 2025.
Amazon's addition to the Russell 1000 Value index in June 2025 increased concentration pressure, with Amazon, Apple and Microsoft now comprising 16% of the index.
Russell 1000 Value ETF is up 20% and Russell 1000 Growth ETF up 7% this year, indicating broader AI-driven gains beyond the largest tech stocks.

Flexible value strategies gain ground

As reported by CNBC, some value investors are expanding their playbook to include technology names that still meet valuation tests, even if they have traditionally been associated with growth investing. MAI Capital Management's Chris Grisanti says that approach has helped his focused equity portfolio outperform in a market where AI enthusiasm is rewarding speed and exposure to a narrow group of stocks.

Grisanti says he built a large position in Dell Technologies earlier this year when the stock traded at about eight times earnings, then cut the holding by roughly two-thirds after a gain of about 400%. He also holds Microsoft and Amazon alongside General Motors, Kimberly-Clark and UPS, and says he added Nvidia for the first time when weaker sentiment weighed on the stock.

The MAI Focused Equity Portfolio, a concentrated strategy holding roughly 22 stocks, is about 8 percentage points ahead of the market this year after also beating it in 2025, according to Grisanti. Its three-year performance is also ahead of both the broader market and the Russell 1000 Value index.

Benchmark pressure reshapes value fund discipline

The shift highlights how difficult it is for active managers to keep pace with indexes that are increasingly dominated by a handful of large technology companies. The top 10 stocks in the S&P 500 now make up roughly 40% of the index, while Amazon, Apple and Microsoft account for about 16% of the Russell 1000 Value index.

Amazon's addition to the value index in June 2025 has added to that pressure, especially for managers with stricter dividend or cash-flow rules. Since late 2022, when ChatGPT's release helped ignite the current AI buildout, large-cap growth has returned more than 98% as measured by the Russell 1000 Growth ETF, while the Russell 1000 Value ETF has risen 34% over the same period.

Morningstar analyst Todd Trubey says that concentration is pushing managers to reduce tracking error by owning stocks they might once have avoided. He points to changes at Vanguard Dividend Growth fund and JPMorgan Equity Income fund, where long-standing dividend requirements have been relaxed or dropped after leadership changes and shifts in portfolio construction.

Trubey says such breaks from established process can be a sign of market stress when investors feel forced to chase the strongest-performing names. Even so, value has outperformed growth this year, with the Russell 1000 Value ETF up 20% against a 7% rise for the Russell 1000 Growth ETF, suggesting AI-driven gains are spreading more broadly across the market.

In our earlier article on Amazon gaining fresh Wall Street support as it expands its AI offerings, we covered how expectations for generative AI demand and Amazon Bedrock’s profitability were strengthening the bullish case for the stock. We also noted that improvements across AWS and retail efficiency initiatives were seen as key buffers against operational headwinds, reinforcing confidence in Amazon’s longer-term growth trajectory.

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