Mutual funds are set to have their best year of outperformance relative to benchmarks since 2007. An actively managed fund proved beneficial during a year of economic uncertainty. Fears of a recession caused funds to rotate to stocks with strong balance sheets. Loading Something is loading.
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Mutual funds often get a bad rap for their high fees and mediocre performance. Long term, they have generally been beaten by passive index funds that have substantially lower fees.
On average, mutual fund fees amounted to $15,000 over 30 years, relative to $1,800 for index funds, according to 2016 data from the Investment Company Institute.
This year, the tables have turned performance-wise. Exceptional stock picks combined with high cash allocations have put mutual funds on track to make their best year since 2007 relative to major indices, according to a November 22 note from Goldman Sachs.
The report indicates that 56% of large-cap mutual funds outperformed their benchmarks compared to a 36% outperformance rate seen since 2007. Meanwhile, 66% of large-cap value funds outperformed the benchmark Russell 1000 Value index.
The ability to maneuver an actively managed fund proved beneficial during a year of economic uncertainty. Rising interest rates and a slowing economy heavily hit large-tech stocks, a category that mutual funds underweighted during the first two quarters of 2022. Overall, these funds are leaning more towards value over growth stocks.
As the year ends, fears of a recession have caused mutual funds to rotate towards stocks with strong balance sheets, low labor costs, and short duration. This signals a pessimistic economic outlook — one that’s paying off so far.
Below are 31 of the 50 stocks listed in Goldman Sachs’ Mutual Fund Overweight Positions basket. As of September 30, these stocks were at least 10 basis points overweight in portfolios, the basket median being 9.
The list also includes 10 stocks were newly added to the basket as mutual funds loaded up on them: Intuitive Surgical (ISRG), Chipotle Mexican Grill (CMG), Workday Inc. (WDAY), M&T Bank Corp. (MTB), Bank of New York Mellon Corp. (BK), Medtronic (MDT), Willis Towers Watson Public (WTW), Constellation Energy (CEG), State Street Corp. (STT), and AES Corp. (AES).
The list is based on the investment bank’s analysis of 548 large-cap core, growth, and value mutual funds with $2.5 trillion in equity assets.