August was a banner month for stockpickers, especially for those who made savvy calls on a small handful of Big Tech winners, also known as the ‘Magnificent Seven.’

Small- and large-cap stockpickers outpaced their benchmarks last month, but a look at the whole year tells a different story: Far fewer funds have managed to beat their indexes, and passive funds will likely still come out on top this year.

After underperforming in June and July, large-cap managers bounced back in August, with 57% of funds beating their Russell 1000 benchmark, Bank of America said in a research note.

Fund managers “got the Magnificent Seven almost exactly right,” electing to underweight Apple (ticker: AAPL) and Tesla (TSLA), which were two of the worst performers last month, while overweighting Alphabet (GOOGL), Amazon (AMZN), Microsoft (MSFT), and Nvidia (NVDA), which outperformed, said Savita Subramanian, head of equity and quantitative strategy at Bank of America, and lead author of the note. Their one bobble: They also overweighted Meta Platforms (META), which underperformed.

Apple’s stock is also off to a rough start in September: shares were falling again Thursday as a China ban on iPhone use for government officials hit investor sentiment.

The seven stocks hold outsize sway over performance as they make up 27.6% of the S&P 500 index. The combined weight of these companies is greater than any combined weight of the top seven companies in the S&P 500 index since before the turn of the 21^st century, according to BlackRock.

“These stocks can make or break your performance in any given month because they’re such big parts of the benchmark,” Subramanian told Barron’s. “Half the battle for mutual funds these days is just getting that 30% of the benchmark right, and it’s down to seven decisions that make up a huge part of your alpha.”

Subramanian added that August turned out to be a month where fund managers’ decisions to overweight and underweight “generally lined up with performance of these companies, with the exception of Meta.”

Another factor that helped large-cap funds last month is that they dodged the worst-performing sector—utilities—by being underweight, or holding a lower percentage than the sector represents in the benchmark, said BofA.

Taking a longer view on fund performance, however, only 37% of large-cap funds are ahead of their benchmark this year. That’s not altogether surprising as data consistently show actively managed funds, in general, fail to beat their benchmarks, especially over longer time horizons.

Subramanian said concentration risk in the Magnificent Seven could cap further upside.

“Mutual funds are almost maxed out in terms of how much of these stocks they can own from a concentration-risk perspective,” she said. “One could argue that they’re going to be more likely to sell rather than add more in these companies.”

Subramanian added that when you have stocks that are significantly overweight, or hitting concentration risk triggers, funds are discouraged from adding exposure, “which means that flows are more likely to be negative rather than positive into those companies.”

BofA said one in five funds has more than 40% of assets under management in the Magnificent Seven versus 12% last year. “That’s a huge jump,” said Subramanian.

Also, one in 10 have more than 40% of assets in just five stocks—a subset of the Magnificent Seven. Amazon, Microsoft, and Nvidia, are the most crowded, with 80% of funds overweight each of these stocks, said BofA.

In August, 88% of small-cap managers beat the Russell 2000 benchmark, the highest monthly rate in more than two years, said BofA. But for the year, just 44% of funds outperformed.

Write to Lauren Foster at lauren.foster@barrons.com