10 Funds Hit Hardest by the DeepSeek AI Stock Downturn

Monday’s selloff in artificial intelligence-related stocks hurt some of the market’s best performers over the past two years, as well as the funds that made big bets on them.

Over half of the 10 biggest losers among diversified stock funds had been in the top 10% of their categories for the last 12 months. The fund hurt the most, the $363 million TCW Transform System ETF NETZ, dropped 8.2%. In 2024, its 28.5% return had placed it in the 5th percentile of the large blend category. Other notable funds hit included a Fidelity Investments offering and several from Alger Funds.

AI Stocks Crash

AI stocks have been major drivers of the bull market for the better part of two years. Semiconductor stocks have been especially big winners, as the large language models behind tools like ChatGPT have used the newest, most advanced chips. News that Chinese company DeepSeek’s open-source reasoning model R1 can perform advanced tasks without the most sophisticated chips sent many of those stocks reeling. The Morningstar Semiconductor Index plunged 14.5% on Monday. The index had surged 107% in 2023 and 83% in 2024.

More than technology names took a big hit. Over the past two years, the AI trade has swept up stocks in sectors as diverse as utilities, energy, and industrials. Even companies with ties to the HVAC industry (which are involved in cooling massive data centers) have slid.

Which Funds Lost the Most on Monday?

We screened diversified US stock funds with at least $100 million in assets. Performance is based on the lowest-cost share class and total return data for Jan. 27. Sector funds were excluded.

The bottom 10 funds crossed the spectrum of market caps, with five large-cap funds, three mid-cap funds, and two small-cap funds. There was less variation in style, with no value funds. There were seven growth funds and three blend funds. Even as growth stocks slid on Monday, large-value names rallied.

Four of the funds had an allocation to the tech sector higher than the 32% of the US Market Index, while two had much larger allocations to utilities than the 2.4% of the market generally.

Nine were actively managed funds, the exception being the $149 million Renaissance IPO ETF IPO, which aims to add newly launched stocks before they are added to indexes.

Here’s a closer look at funds caught in the downdraft.

TCW Transform Systems ETF

This fund fell by 8.2%, in a microcosm of the downturn in AI-related stocks. The biggest detractor to its performance was Vertiv Holdings VRT, which helps service data centers, which had seen a huge increase in demand from AI. The stock fell 30%, knocking more than 2 percentage points off the fund. Among its other detractors were Vistra VST and Constellation Energy CEG, electricity providers that had been favorites of investors making AI-related plays. Both stocks were down by double digits yesterday.

Fidelity Leveraged Company Stock

The Fidelity Leveraged Company Stock fund FLCKX fell by 7% and followed a similar pattern to the TCW fund. It held Vistra, Constellation, Vertiv, and Nvidia NVDA, the chipmaker that has exploded in value in the past several years primarily due to AI-related demand for its chips. Nvidia knocked off 0.8% of the fund’s performance as it fell 17% yesterday.

Alger Large-Cap Growth Fund

Three funds were run by Alger Capital, the worst-performing of which was the $368 million Alger Large-Cap Growth Fund AAGOX, which declined by 6%. It too lost big due to large weightings to Nvidia and Vertiv, as well as other chip firms such as Broadcast AVGO and Taiwan Semiconductor Manufacturing TSM, which were also down by double digits.

Long-Term Performance

All 10 funds landed in the top third of their categories for the past year, and a majority are in the top tenth. Longer-term results are a much more mixed bag. Based on three-year trailing returns, four of the funds—the $1.4 billion Kinetics Paradigm Fund KNPYX, the $2.1 billion Alger Capital Appreciation Fund AVAZX, and the $2.3 billion Alger Capital Appreciation Institutional Fund ACAYX—were all in the top 1% or 2% of their categories by three-year returns.