Perhaps the fund's objective is to take more risks in search of higher returns compared to the overall market. This would necessarily be disclosed in the fund's prospectus. Or it could be that the stock was bought when AUDA was a better performer and, rather than lock in a loss, the manager is holding on to it in hopes of at least some recovery, or at least less of a loss. Indexes, at least in theory, provide a more objective approach, although there's now a proliferation of indexes. Index providers make money by licensing the use of those indexes to fund managers.
Two index funds are listed among the top 10 holders of AUDA: Fidelity Extended Market Index and Vanguard Extended Market Index. They are intended as mid-cap and small-cap complements to large-cap indexes such as the S&P 500. Vanguard especially makes that clear. In the case of the Vanguard fund (VEXAX), the benchmark is the S&P Completion Index; there are 3686 stocks in that index; the Vanguard fund has 3662. The Fidelity fund (FSMAX) benchmark is something similar, the Dow Jones U.S. Completion Total Stock Market Index.
Active fund management is just as much a matter of managing risk as it is of performance, though this is often forgotten as so much fund marketing is focused on performance. But what wins in year x doesn't necessary keep on winning in year x+1. It's also easy to get risk management wrong and even star managers get caught out and have bad years. In the case of passive fund management, for the client, it's a simpler matter of asset allocation and deciding how aggressive you want to be, based on the indexes that the funds you've chosen are tracking. After deciding on the appropriate asset allocation based on risk tolerance, time horizon, etc., then you buy on the operating expense ratio of a fund.
None of the above is intended to be financial advice but, rather, is explanatory in nature.
