- Mutual funds are having their best start to a year in almost a decade, according to Goldman Sachs.
- Their most-loved positions have outperformed thanks to the value factor and cyclical sector tilts.
- Goldman Sachs analyzed 443 large-cap funds to arrive at 14 new stocks most favored by fund managers.
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With red-hot ETFs, individual stocks, SPACs, and cryptocurrencies grabbing all the headlines, it’s hard to believe that mutual funds are making a comeback this year, but they really are, according to Goldman Sachs.
Goldman’s portfolio strategy team, which analyzed the positioning of 507 stock mutual funds with $2.7 trillion in assets under management, said in a Monday research note that 57% of large-cap mutual funds have beaten their benchmarks year-to-date, marking their strongest start in almost a decade.
The team said these funds’ highest-conviction stock holdings and factor exposures have contributed to their above-average relative returns this year as of February 12.
In fact, since Pfizer announced the efficacy of its COVID-19 vaccine in early November, Goldman’s basket of most overweight mutual fund positions (GSTHMFOW) has returned 15% so far, outperforming its basket of most underweight mutual fund positions (GSTHMFUW) by 6.5%.
In addition to high-conviction stock-picking, the outperformance of these funds is aided by their increased exposure to the value factor, which is at their highest level on record, Goldman said.
On top of that, fund managers’ rotation into cyclical sectors such as industrials, financials, and materials since the fourth quarter has also helped generate returns amid the reopening of the economy and continued rollout of vaccines.
To identify the most over- and under-weight positions of long-only mutual fund managers, Goldman analyzed $2.6 trillion of individual stock holdings from 443 large-cap core, growth, and value mutual funds.
Historically, the portfolio of most overweight mutual fund positions is comprised of 50 Russell 1000 stocks where the average large-cap core, growth, and value mutual fund is most overweight relative to a blended benchmark.
With the recent rebalancing of the portfolio, the team has identified 14 new stocks favored by mutual fund managers. Goldman said these stocks can be used to “follow mutual fund preferences or to locate contrarian opportunities,” but cautioned that they have a large-cap stock bias.
For example, the overweight mutual fund positions basket has a median market cap of $66 billion, compared to the $14 billion median market cap for the Russell 1000 index.
These stocks, along with their tickers, market caps, and average fund weights, are listed below in alphabetical order.