Concentrated ETF Bests S&P 500 With Active Stock Picks: What Investors Should Know About CNEQ

Summary: A concentrated, actively managed ETF—the Alger Concentrated Equity ETF (CNEQ)—delivered more than 32% in 2025, beating the S&P 500 by over 14 percentage points. Supporters say its high-conviction approach helped it capitalize on a market where leadership, innovation, and artificial intelligence (AI) themes mattered a lot. Critics caution that concentration can amplify both gains and losses, especially when the portfolio leans heavily toward mega-cap growth and AI-linked stocks.

Why This News Matters Right Now

Over the last few years, many investors have faced a tricky question: Should I own “the market,” or should I lean into the small group of companies driving most of the gains? Broad index funds like S&P 500 ETFs have been a simple answer for decades. But when markets become top-heavy—where a handful of giants carry a big share of returns—some investors start looking for strategies that are willing to be more selective.

That’s where the story behind Concentrated ETF Bests S&P 500 With Active Stock Picks fits in. The headline is simple: CNEQ outperformed. The deeper lesson is more interesting: the fund did it through a concentrated portfolio (no more than about 30 holdings) and an active approach that intentionally leans into high-conviction ideas rather than holding hundreds of stocks.

Whether you love or hate the strategy, the performance forces investors to think about trade-offs:

Diversification vs. conviction: fewer holdings can mean clearer winners—and bigger mistakes.
Index exposure vs. manager skill: active bets can pay off when the manager is right (and hurt when they aren’t).
Theme exposure: concentrated growth funds can become “AI funds” in practice if AI leaders dominate holdings.

What Is the Alger Concentrated Equity ETF (CNEQ)?

The Alger Concentrated Equity ETF (ticker: CNEQ) is an actively managed equity ETF that focuses on large-cap growth and maintains a concentrated portfolio of roughly 30 stocks. In other words, it’s designed to be the opposite of “own everything.” It aims to hold what the manager believes are the best opportunities, rather than spreading money across hundreds of names.

Key traits (based on public fund descriptions and listings)

Portfolio size: about 30 holdings
Style bucket: large growth
Launch timing: April 2024 (so it is relatively new)
Expense ratio: listed around 0.55% on major ETF data pages

That fee level is not “cheap index fund” territory, but it’s also not unusual for an actively managed ETF that runs a research-heavy strategy.

The Headline Performance: How CNEQ Beat the S&P 500

The eye-catching data point in the news is the reported 2025 return: CNEQ returned more than 32%, exceeding the S&P 500 by over 14 percentage points.

In plain English, that means if the index was up roughly the high teens, CNEQ was up in the low-to-mid 30s—an advantage big enough that investors can’t just shrug it off as “noise.” When a fund beats the benchmark by that kind of margin, people naturally ask:

Was it skill, or just the right exposure at the right time?
Is it repeatable—or was 2025 a perfect storm?
What risks did the fund take to earn those returns?

A reminder about time frames

One strong year can be meaningful, but it isn’t a lifetime track record. Since CNEQ launched in 2024, investors should judge it with a “new fund” mindset: promising results can still come with uncertainty about how the strategy behaves in different market climates.

How a Concentrated ETF Can Outperform

A concentrated ETF typically tries to win in a straightforward way: own more of the best ideas and less of everything else. If the best ideas perform well, returns can outpace broad indexes.

1) Bigger impact from top holdings

When a fund holds 500 stocks (like the S&P 500), each holding is usually a small slice. Even the best winners can get diluted. But when a fund holds 30 stocks, every holding matters more. That’s great if the manager gets the big calls right.

2) Ability to “lean in” to structural trends

In 2025, one major structural trend kept showing up across markets: AI adoption and AI infrastructure. Concentrated strategies can own larger weights in the companies that benefit most, rather than being forced to own the entire market.

3) More freedom than an index

Index funds must own what the index owns, at weights the index dictates. Active funds can:

avoid companies they think are overpriced,
emphasize businesses with strong pricing power,
increase exposure to names they believe have multi-year growth runways.

That freedom is valuable—if the manager uses it well.

Inside the Portfolio: The “Magnificent” Tilt Toward Mega-Cap Tech and AI

One of the clearest ways to understand CNEQ is to look at what it owns. Public ETF data pages show a top-10 lineup that reads like a who’s-who of mega-cap tech and AI infrastructure:

Examples of large top holdings (as listed by major ETF data aggregators)

NVIDIA (NVDA)
Microsoft (MSFT)
Amazon (AMZN)
Alphabet (GOOG)
Taiwan Semiconductor (TSM)
Apple (AAPL)
Broadcom (AVGO)
Meta Platforms (META)

These names appear prominently among CNEQ’s largest positions on widely used ETF listing pages.

This matters because it explains a lot about performance. If the portfolio is heavily weighted toward companies that benefited from AI-driven demand—chips, cloud infrastructure, and platform ecosystems—then a strong year for that theme could power meaningful outperformance.

What this implies about the strategy

Even if the fund doesn’t market itself as “an AI ETF,” the holdings can make it behave like one. That can be a feature or a bug depending on the market cycle:

Feature: if AI leaders keep compounding earnings and demand keeps rising, concentrated exposure can shine.
Bug: if the AI trade becomes overcrowded or valuations compress, concentration can magnify drawdowns.

The Manager’s “High-Conviction” Philosophy (And Why It’s Not For Everyone)

Coverage of the fund and interviews with its leadership have emphasized a high-conviction approach: owning a relatively small set of companies believed to have durable competitive advantages—like strong brands, pricing power, or dominant market position.

This is a classic growth-investing mindset: find businesses that can compound value for years because their products, ecosystems, or networks create staying power.

What “high conviction” looks like in practice

It often means:

Large position sizes in top ideas (so winners move the needle).
Willingness to be different from the benchmark (so performance can diverge meaningfully).
Focus on long-term trends rather than short-term market noise.

But here’s the catch: in exchange for a chance at outperformance, investors accept that results can be bumpier than the index.

Concentration Risk: The Other Side of the Coin

It’s tempting to see a big outperformance year and assume it’s a free lunch. It isn’t. Concentrated ETFs come with specific risks that investors should understand before chasing returns.

1) Single-stock and theme risk

If a top holding stumbles—due to earnings disappointment, regulation, competition, or valuation compression—the impact can be meaningful. With ~30 holdings, there’s less “padding” than a broad index fund.

2) Sector tilts can amplify drawdowns

If the portfolio is tilted toward tech and communications (common for growth strategies), then a tech-led downturn can hurt more than the broader market.

3) Valuation sensitivity

High-growth names often trade at higher multiples. When interest rates rise or investors rotate toward value, those multiples can compress quickly.

4) Manager risk

Active strategies rely on decisions: what to buy, what to sell, and how large each position should be. If the manager’s process stops working, performance can shift.

Why 2025 Was a “Friendly” Environment for This Kind of ETF

To understand why CNEQ’s approach may have worked well in 2025, it helps to think about what markets rewarded:

Markets rewarded scale and AI leverage

The companies most tied to AI infrastructure and adoption—like GPU leaders, cloud platforms, and major software ecosystems—had clear narratives, strong demand signals, and deep investor attention. A concentrated fund that put meaningful weight into those areas could ride that wave.

Index concentration made “best ideas” matter more

When a small group of giants dominates market leadership, the difference between “owning them lightly” and “owning them heavily” can create a wide return gap. A concentrated fund can intentionally overweight leaders rather than accept index weights.

How This Compares to “Just Buying the S&P 500”

Let’s keep this grounded: broad S&P 500 ETFs remain popular because they are:

low cost,
diversified,
simple to hold long-term.

A concentrated active ETF is a different tool. It’s more like a “focused satellite holding” that some investors might pair with a core index position.

Potential roles in a portfolio

Core-only investors: may skip concentrated active ETFs to avoid complexity and tracking error.
Core + satellite investors: might use CNEQ-like funds as a growth “booster,” sized carefully.
High-risk tolerance investors: may allocate more, understanding volatility can be higher.

Practical Checklist: Questions to Ask Before Buying a Concentrated Active ETF

If you’re considering a fund like CNEQ because of headlines about beating the S&P 500, use this checklist first:

Strategy & fit

Do I understand what drives returns? (AI, mega-cap growth, quality growth, etc.)
Can I hold through underperformance? Active funds can lag for long stretches.
Am I okay being different from the market? You will not track the index closely.

Portfolio construction

What is my position size? Many investors keep satellite positions smaller than core holdings.
What else do I own? If you already own a tech-heavy growth ETF, you might be doubling up.

Costs & trading

Am I comfortable with the fee? Active management costs more than indexing.
Do I plan to trade it frequently? Chasing performance can be a losing habit.

What This Could Mean for 2026: Opportunity vs. Overcrowding

Investors looking ahead to 2026 should treat the 2025 outperformance as a case study, not a promise. The same forces that helped concentrated growth strategies can also create new risks.

Potential tailwinds

Continued AI investment in chips, data centers, and enterprise software.
Strong platform economics for dominant tech firms with ecosystem advantages.
Operating leverage if revenue growth stays healthy while costs stabilize.

Potential headwinds

Valuation resets if markets reprice growth expectations.
Regulatory pressure on large platforms.
Competition that erodes margins or slows growth.
Theme crowding, where “everyone owns the same winners,” increasing volatility when sentiment shifts.

Investor-Friendly Takeaways (No Hype, Just Reality)

Here are the most practical lessons from the “Concentrated ETF Bests S&P 500 With Active Stock Picks” story:

Concentration can work—especially when market leadership is narrow and powerful.
It’s not magic—the portfolio’s big winners likely mattered a lot.
Risk is real—fewer holdings means bigger swings, good and bad.
Use it intentionally—many investors treat concentrated active ETFs as satellites, not the whole plan.
Don’t buy only because of last year—performance chasing is how people buy high and sell low.

FAQs

1) What does “concentrated ETF” mean?

A concentrated ETF holds a relatively small number of stocks (often 20–40). Because each holding is a larger slice of the portfolio, performance can differ a lot from broad market indexes.

2) How did CNEQ outperform the S&P 500 in 2025?

Public reporting tied to the fund indicates it returned more than 32% in 2025, beating the S&P 500 by over 14 percentage points. The fund’s concentrated, high-conviction approach likely benefited from strong performance in its major holdings and themes.

3) How many stocks does CNEQ hold?

Major ETF data pages list CNEQ at about 30 holdings.

4) Is CNEQ basically an “AI ETF”?

Not officially, but it can behave like one if AI-linked mega-cap holdings make up a big portion of the portfolio. That can help when AI leaders are strong—and hurt if the AI trade weakens.

5) What’s the biggest risk of a concentrated active ETF?

The biggest risk is that a few holdings can drive results. If those holdings struggle, the fund can fall faster than a diversified index.

6) Should beginners invest in concentrated active ETFs?

Beginners often start with diversified, low-cost index funds first. Concentrated active ETFs can be considered later as a smaller “satellite” position—especially if the investor understands volatility and can stick with a plan.

Source & Further Reading

Original topic reference: “Concentrated ETF Bests S&P 500 With Active Stock Picks” (ETFTrends).
Fund data snapshot (holdings/overview): https://stockanalysis.com/etf/cneq/

Conclusion

The big message behind Concentrated ETF Bests S&P 500 With Active Stock Picks is not that everyone should abandon index funds. It’s that, in certain market environments, focus can beat breadth—especially when a fund owns meaningful weights in the companies shaping the economy’s next chapter.

CNEQ’s standout 2025 result highlights both the upside and the warning label of concentration. If you understand what drives the portfolio, accept the volatility, and size the position thoughtfully, a concentrated active ETF can be a useful tool. If you’re simply chasing last year’s winner, it can also be an expensive lesson.

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