As we roll into a new financial year, investors and fund managers will be reflecting on their FY25.

The past financial year proved to be a standout for many S&P/ASX 200 Index (ASX: XJO) companies. 

In FY25, the ASX 200 Index rose 10%. According to Vanguard, this is slightly above the Australian share market's long-term average of 9.2% per annum. 

Strong performance came from companies across a broad range of sectors. 

In the technology space, family location app Life 360 Inc (ASX: 360) gained an impressive 101% in FY25. 

Within the mining sector, Evolution Mining Ltd (ASX: EVN) lifted a staggering 129% over the 12-month period. 

Meanwhile, biotech giant Telix Pharmaceutics Ltd (ASX: TLX) rose 35%.  

Investment conglomerate Washington H Soul Pattinson and Company Ltd (ASX: SOL) also had a solid 12 months, sitting 28% higher. 

Telecommunications company Telstra Ltd (ASX: TLS) also had a standout period, rising 35%. Even supermarket giant Coles Group Ltd (ASX: COL) gained 23%.

Measuring performance

The ASX 200 Index is a common benchmark for many Australian fund managers to measure their performance each financial year. 

Those who included the aforementioned ASX 200 companies in their portfolios are more likely to have beaten the index in FY25. 

However, there's one standout ASX 200 company (yet to be mentioned) that fund managers are less likely to have taken a material position in during FY25. 

That company is the banking giant Commonwealth Bank of Australia (ASX: CBA). 

CBA shares are up 47% over the past 12 months. They are also the largest company in the ASX 200, with a market capitalisation in excess of $300 billion. 

CBA shares make up around 12% of the index. For reference, the next largest company, BHP Ltd (ASX: BHP), accounts for around 7% of the index.

Therefore, CBA's 12 month performance has had a significant impact on the ASX 200 Index's returns. This is problematic for fund managers who are underweight CBA shares.

Why are fund managers likely to be underweight CBA?

Over the past couple of financial years, a growing number of investment professionals have warned that CBA shares are materially overvalued. 

With CBA shares now trading at a price-to-earnings ratio (P/E) of above 30, it's an easy case to make. 

Last week, the Australian Financial Review reported:

CBA set another world record [last] week by becoming the first developed market lender to trade on a price to earnings multiple of 30 times – almost double the historic average of 16 times as far back to 1996. There is no other bank in the world that is valued at more than 20 times its earnings.

Broker Macquarie Group Ltd (ASX: MQG) currently has a price target of $105 on the company. 

For valuation reasons, the majority of active fund managers were underweight CBA shares last financial year. For example, Wilson Asset Management lists CBA as one of its top five underweight positions in its WAM Leaders (ASX: WLE) fund.  As reported by the Australian Financial Review, Regal Partners investment director Charlie Aitken told clients CBA was "the biggest single-stock bubble [he's] seen in 30 years of being at the coalface".

Foolish Takeaway

In FY25, the majority of active fund managers avoided buying CBA shares for valuation reasons. Now, as they review their performance, they see the cost of missing out on significant gains made by the ASX 200's biggest company.