Mutual funds are on track to enjoy their best year since 2007, thanks to their winning stock picks and big cash piles during a tumultuous year, according to Goldman Sachs. Fifty-six percent of large-cap mutual funds have outperformed their respective benchmarks this year, the highest hit rate of outperformance in 15 years, the Wall Street firm said. In the average year since 2007, only 36% of large-cap mutual funds have beaten the market, the bank said. “Driven by exceptional stock picking and high cash allocations, mutual funds are on track for their best year relative to the major indices since 2007,” Goldman strategists said in a note. A high allocation to cash provided a tailwind to returns for mutual funds when the market was in turmoil this year, Goldman said. The average fund allocates 2.5% of its portfolio to cash, a jump from 1.5% at the start of 2022 and the highest level since April 2020, the firm said. Meanwhile, stock picking has also contributed to mutual fund outperformance in 2022. The portfolio of the average mutual fund has generated 86 basis points of cumulative alpha this year, on track to be the best year for the portfolio since at least 2017, Goldman said. The market has been roiled this year as the Federal Reserve deployed a series of aggressive interest rate hikes in an effort to bring down inflation running at the fastest pace in 40 years. Many fear the tightening could tip the slowing economy into a recession. The S & P 500 has fallen 16% this year. Goldman analyzed the quarter-end positioning of 548 mutual funds with a combined $2.5 trillion in equity assets to identify the most overweight positions of long-only investors. Credit card giants Mastercard and Visa were top of the list. Health-care names UnitedHealth , Danaher and Cigna were also popular among mutual funds.
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