- Mutual funds will have their best year of benchmark outperformance since 2007.
- An actively managed fund proved beneficial during a year of economic uncertainty.
- Recession fears caused funds to shift to stocks with strong balance sheets.
Mutual funds often get a bad reputation for their high fees and mediocre performance. Long term, she are generally beaten by passive index funds which have significantly lower rates.
On average, mutual fund fees averaged $15,000 over 30 years, compared to $1,800 for index funds, according to 2016 data from the Investment Company Institute.
This year the roles have been reversed in terms of performance. Exceptional stock selection combined with high cash allocations have put mutual funds on track to record their best year since 2007 against major indices, according to a Nov. 22 Goldman Sachs report.
The report indicates that 56% of large-cap mutual funds outperformed their benchmarks compared to an outperformance of 36% 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 hit big technology stocks hard, a category in which mutual funds were underweight in the first two quarters of 2022. In general, these funds tend more towards value than growth stocks.
At the end of the year, fears of a recession have led mutual funds to pivot to stocks with strong balance sheets, low labor costs and short maturities. This signals a pessimistic economic outlook – one that has paid off so far.
Listed below are 31 of the 50 stocks in Goldman Sachs’ Mutual Fund Overweight Positions basket. As of September 30, these stocks were at least 10 basis points overweight in portfolios, with the basket median being 9.
The list also includes 10 stocks that were newly added to the basket when mutual funds were loaded onto it: 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 funds with $2.5 trillion in equity.