Big stock-pickers are beating benchmarks to a degree not seen since 2007 - and a broadening market could mean even better odds ahead
Virojt Changyencham/ Getty Images
- Driven by tech momentum, 64% of active funds outperformed benchmarks last quarter, marking the strongest quarter since 2007.
- Growth funds led with 61% outperforming, driven by reduced holdings in underperforming Apple and Tesla during the first quarter.
- BofA sees better odds for active managers to pick winners as stock market leadership broadens.
The stock market's stellar performance in 2024 has catapulted big-stock mutual funds to hit a record-high rate not seen in 17 years.
64% of active funds triumphed over benchmarks in the past three months, thanks to the robust equity momentum driven by tech stocks. It marks their best quarterly return since 2007, far surpassing the 33% hit rate in the first quarter of 2023, Bank of America's strategists led by Savita Subramanian said in a note on Thursday.
Zooming in, January drove the quarterly outperformance, with 73% of funds beating their benchmark, compared to 54% in February and 53% in March.
Across the board, all investment styles shone last quarter. Leading the pack were growth funds, with 61% outperforming, because of fewer investments in Apple and Tesla — both stocks' underperformance shaved over 2 percentage points off the Russell 1000 Growth index, stategists wrote.
Core funds also surged by 63% in Q1, while Value funds largely missed out on the recent rally, with only 40% surpassing the Russell 1000 Value index. That said, 55% of Value funds remain in the lead year-to-date, buoyed by robust performance in January and February.
Shifting gears from big names, small and mid-sized funds took a hit in February but roared back in March, when 62% of small cap funds and 57% of mid cap funds beat their benchmarks, ending Q1 on a strong note with success rates climbing to 58% and 51% respectively, the note said.
Looking ahead, BofA sees a widening market on the prospect of a leadership expansion in March, which would boost chances for fund managers to pick winners.
"[A]ll BofA regime models point to a macro recovery and the earnings growth differential between mega caps and the rest of the index is expected to narrow throughout the year," the team wrote, despite warning of potential risk to those sticking with last year's winners while leadership moves away from mega-caps.