What outperforming mutual funds are buying and selling
Mutual funds, large pools of cash run by professional investment managers, seem to be having their best year in more than a decade, an analysis by Goldman Sachs showed. “A greater share of mutual funds has outperformed their benchmarks in 2022 than in any year since 2009,” Goldman’s analysts, led by Cormac Conners, said in a research note on Aug. 25. This year to date, 50% of large-cap mutual funds have beaten the market — higher than the 10-year average of 34%. The outperformance has been driven by the “fastest rotation towards cash since the Global Financial Crisis,” Conners added. Mutual fund managers now allocate an average of 2.4% of their portfolios to cash, up from just 1.5% at the start of the year, according to Goldman. But not all mutual funds have enjoyed the same success. Goldman noted that mutual funds with a higher allocation to growth stocks such as tech have been a “notable exception” and are going through “one of the worst stretches of performance on record.” This has been driven by poor stock selection among the largest tech stocks, according to the bank, which said that “the stocks that Growth managers are most overweight have struggled.” Meanwhile, funds with a large underweight position in Apple have created “a significant performance drag” and deprived the average portfolio of higher returns, Conners said. Apple has outperformed the S & P 500 by 7 percentage points so far this year, he added. But growth funds have had some recent success as such stocks rallied sharply in the second half of the year. Conners noted a growing preference for growth stocks among all mutual fund managers, who “added aggressively” to the largest tech stocks in the second quarter. What’s in the funds Goldman’s analysis showed the average fund added exposure to Tesla , Apple, Amazon , Microsoft , Nvidia and Alphabet , while maintaining their exposure to Meta . Tesla, Apple, Amazon, Microsoft and Nvidia were the top five most added stocks in the second quarter, according to the bank. Other stocks that saw the largest increases included Warren Buffett’s Berkshire Hathaway . The Omaha-based conglomerate has been active in this year’s bear market, scooping up stakes in Apple, Occidental Petroleum and Chevron . It also acquired insurance company Alleghany for $11.6 billion. Netflix made Goldman’s list too. The streaming giant has endured a difficult year so far amid its well-documented loss of subscribers, but said it expects to add around 1 million net new subscribers for the third quarter. In addition to Nvidia, mutual funds also added exposure to two chip stocks — Advanced Micro Devices and NXP Semiconductors . Chip stocks have been beaten down this year amid a correction in the sector after two years of pandemic-induced boom, while several chipmakers have also issued warnings of slowing demand. Other stocks that made Goldman’s list include Visa , United Parcel Service and Charles Schwab . Conner said mutual funds also trimmed their exposure to more traditionally cyclical sectors, such as industrials, energy, materials and financials. Salesforce saw the biggest reduction in exposure, while German chemicals firm Linde , Marlboro maker Altria Group , Illinois-based biopharma firm AbbVie and Johnson & Johnson all saw reductions of more than 10 basis points each.