By Rose Henderson

(Bloomberg) — The proportion of large-cap active mutual funds outperforming their benchmark so far this year is the highest since 2007 as equity market gains broaden beyond big tech, according to Goldman Sachs Group Inc. (GS) strategists.

Among these funds, 57% are exceeding their benchmarks year-to-date, the team including Ryan Hammond wrote in a note. That’s far above the average of 37% since 2007 with Hammond putting the reason partly down to weak returns from mega-cap tech stocks.

“Investors are digesting various macro and micro cross-currents this year, including prospects for a cyclical acceleration and perceived ‘winners’ and ‘losers’ from AI disruption,” Hammond said. “These themes have led to a broadening in equity market returns beyond the handful of stocks that have led the index higher during the past few years.”

Lackluster performance this year from the Magnificent 7 has opened up opportunities for mutual funds, which are traditionally actively managed. A broader move by these funds to reduce their exposure on the software sector has insulated their returns from the recent market chaos, according to the Goldman Sachs strategists.

Still, fund selection remains important, the strategists said. While 65% of large-cap core and 60% of large-cap growth are outperforming, that figure falls to 42% for value funds. The strategists also highlighted the continuing shift from active to passive funds, although they noted that $31 billion of inflows into US equity active ETFs year-to-date is an exception.

Mutual funds are most overweight financials and industrials and most underweight on the info tech sector, according to the note. Cash balances have been cut to 1.1%, the lowest on record.

Goldman’s note analyzed the quarter-end positioning of 524 large-cap active mutual funds with a combined $4.1 trillion in equity assets.

—With assistance from Michael Msika.

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