Goldman Sachs: Mutual Fundamentals – Equity Market Broadening Boosts Returns

Goldman Sachs reports that 57% of large-cap active mutual funds are outperforming their benchmarks year-to-date, the highest proportion since 2007. Large-cap core and growth funds performed best, partly due to weak returns from mega-cap technology stocks. Cash positions have dropped to a record low of 1.1% of assets. US equity mutual funds and ETFs saw net inflows of $25 billion year-to-date, with active ETFs attracting $31 billion and passive ETFs $39 billion, while active mutual funds experienced $48 billion in outflows. Market breadth has improved to near-average levels, and S&P 500 three-month return dispersion has widened to 41 percentage points, sitting at the 93rd percentile since 1980. This combination of broader market participation and high return dispersion has created a favorable environment for stock pickers. Funds maintain their largest overweight positions in financials and industrials, while remaining most underweight in information technology. The software sector's recent sell-off poses limited risk to fund returns, as funds have gradually reduced exposure since early 2024. Within the Magnificent 7, funds are net underweight six names, with Tesla as the sole net overweight.