Active Fund Managers Off to Lousy Start This Year

Adding to the pain were wrong-footed industry wagers. At the start of the quarter, large-cap core funds favored financial shares more than any other major groups except for industrials, according to Goldman Sachs Group Inc. data. Technology, on the other hand, was the least popular.

The actual sector performance turned out to be almost the exact opposite.

Financial shares ranked at the bottom of the 11 S&P 500 industries, losing 6%, as bank failures spurred concern over the industry’s health. Meanwhile, money sought safety in cash-rich companies, sparking a 21% surge in tech.

All told, a Goldman basket of mutual funds’ most-favored stocks trailed their least-favored by 7.5 percentage points during the first quarter.

“Mutual funds materially underperformed recently due to their overweight in financials and underweight allocation to mega-cap tech,” Goldman strategists including David Kostin wrote in a note in late March.

The list of market-beating stocks that money managers can choose from is dwindling.

This year, only 33% of members in the Russell 3000 have outperformed, compared with 47% in 2022. And many of the big winners are concentrated in one industry: tech.

To see the challenge facing stock pickers, consider this statistics: while the Russell 3000 was up 6.7% in the first quarter, the tech-heavy Nasdaq 100 surged 20%. That’s the widest spread in favor of the latter since 2001.

“Narrow breadth was a headwind for active funds,” said BofA’s Subramanian.

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