{"id":956,"date":"2026-05-25T08:04:01","date_gmt":"2026-05-25T08:04:01","guid":{"rendered":"https:\/\/durhammovinghub.com\/?p=956"},"modified":"2026-05-25T08:04:01","modified_gmt":"2026-05-25T08:04:01","slug":"goldman-sachs-has-a-stark-message-on-mutual-funds-and-the-mag-7","status":"publish","type":"post","link":"https:\/\/durhammovinghub.com\/?p=956","title":{"rendered":"Goldman Sachs has a stark message on mutual funds and the Mag 7"},"content":{"rendered":"

The S&P 500<\/a> is up roughly 9% this year. The average large-cap mutual fund<\/a> is up too, in absolute terms. The gap between those two facts is where Goldman Sachs found its story.<\/p>\n

Read more ‘Euphoria’ Kills Off [Spoiler] in Gruesome Twist Before Series Finale<\/a><\/p>\n

According to a Goldman Sachs research note published May 20, only 29% of large-cap mutual funds<\/a> are outperforming their benchmarks year-to-date, well below the historical average of 37%. And Goldman’s analysts have a specific explanation for why.<\/p>\n

Goldman’s “Mutual Fundamentals” note analyzes the quarterly positioning of 509 large-cap active mutual funds managing a combined $3.9 trillion in equity assets. The May 20 note was authored by Ryan Hammond, Daniel Chavez, Ben Snider, Jenny Ma, Kartik Jayachandran, and Christophe Sung at Goldman Sachs Global Investment Research.<\/p>\n

The core finding: large-cap mutual funds were 723 basis points underweight the Magnificent 7<\/a> as of Q1 2026, up from 710 basis points underweight in Q4 2025. That is not a small positioning tilt. At the scale of a $3.9 trillion asset base, a 723 basis point<\/a> underweight in the market’s most dominant group of stocks is a structural drag on relative performance.<\/p>\n

More Wall Street<\/a>:<\/strong><\/p>\n

The note also reveals that on a net shares basis, mutual funds reduced ownership in each of the Magnificent 7 during Q1, with the largest reduction in Alphabet despite its strong year-to-date performance. <\/p>\n

AAPL<\/a>, NVDA<\/a>, GOOGL<\/a>, and AMZN<\/a> outperformed year-to-date while MSFT<\/a>, TSLA<\/a>, and META<\/a> lagged, creating wide dispersion inside the group. Yet even with that mixed performance, the average large-cap mutual fund cut exposure to every single name.<\/p>\n

The underperformance is not evenly distributed across fund styles. Goldman’s data shows 50% of large-cap growth funds are outperforming their benchmarks year-to-date, compared with 25% of core funds and just 13% of value funds. The divergence reflects where market leadership has concentrated.<\/p>\n

Value funds, by definition, tend to underweight expensive high-multiple growth stocks, including the Mag 7. <\/p>\n

When those same stocks drive the lion’s share of index returns, the structural underweight in value strategies becomes a direct drag on relative performance that has nothing to do with stock selection quality. <\/p>\n

Goldman’s note describes it plainly: large-cap mutual funds have delivered positive absolute returns but have struggled to keep pace with rising benchmarks.<\/p>\n

The benchmark concentration problem is compounding the issue. When the S&P 500’s return is being driven by a small number of enormous stocks, even a marginally smaller weight in those names can create a meaningful performance gap. <\/p>\n

Goldman notes that diversification<\/a> constraints continue to play a role in the Mag 7 tilts, which helps explain why many funds cannot simply match benchmark weights in stocks that have grown to represent such a large share of the index.<\/p>\n

Beyond the Mag 7, Goldman identified a major thematic rotation inside mutual fund portfolios during Q1. The average large-cap mutual fund increased its semiconductor overweight by 25 basis points to plus 49 basis points, while simultaneously increasing the magnitude of its software underweight by 12 basis points to minus 36 basis points, excluding mega-caps.<\/p>\n

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That semis-versus-software preference is now the widest it has been since at least 2012. Mutual funds carry their lowest exposure to software since at least 2012, while the overweight in semiconductors remains modestly below the peaks of Q1 2023 and Q2 2024. <\/p>\n

Six of the twenty most popular mutual fund increases in Q1 were constituents of Goldman’s AI<\/a> Data Centers basket, including Arista Networks, Corning, SanDisk, and Coherent.<\/p>\n

The rotation reflects the broader market narrative: hyperscaler capital expenditure<\/a> upgrades have benefited semiconductor names while concerns about AI disruption have weighed on software valuations. <\/p>\n

Managers are leaning into that trade, but Goldman’s note points out the irony: even as funds rotate aggressively into the AI infrastructure theme, the strong performance of some of those positions meant funds struggled to keep pace with rising benchmark weights in the same names.<\/p>\n

Source: Goldman Sachs May 20 note<\/p>\n

Goldman’s note delivers a straightforward but uncomfortable message for the active management industry. The market is being driven by a small set of enormous stocks. <\/p>\n

Many active funds are underweight those stocks for reasons that are structural rather than tactical, including diversification limits, risk management frameworks, and valuation discipline that makes it difficult to own expensive mega-caps at benchmark weight.<\/p>\n

The result is a performance environment where good stock selection across the rest of the portfolio is not enough to overcome the drag from being underweight the five or ten names that matter most to index returns. <\/p>\n

Goldman’s Mutual Fund Overweight basket, the fifty stocks where the average large-cap fund is most overweight, has returned minus 3% year-to-date versus plus 6% for the equal-weight S&P 500 and plus 14% for the Mutual Fund Underweight basket. <\/p>\n

Active managers’ favorite stocks are not just underperforming the market. They are significantly underperforming the stocks those same managers are avoiding.<\/p>\n

For investors in actively managed large-cap funds, the data imply that benchmark-beating performance in the current market environment requires either a willingness to own the Mag 7 at or above benchmark weight or the ability to generate enough alpha elsewhere in the portfolio to offset the structural drag from being underweight. <\/p>\n

Goldman’s note suggests most funds are doing neither with sufficient conviction. That gap between 29% outperforming and the 37% historical average is unlikely to close until either market leadership broadens or active managers meaningfully increase their exposure to the names that are driving the index.<\/p>\n

Related: HSBC resets its S&P 500 price target for the rest of 2026<\/a><\/strong><\/p>\n

The Arena Media Brands, LLC THESTREET is a registered trademark of TheStreet, Inc.<\/i><\/p>\n

Read more Kate Mansi Confirms Exit From ‘General Hospital’ After a ‘Difficult Decision’<\/a><\/p>\n

This story was originally published May 24, 2026 at 6:03 PM.<\/span><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

The S&P 500 is up roughly 9% this year.<\/p>\n","protected":false},"author":1,"featured_media":955,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[],"class_list":["post-956","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-read-todays-edition"],"yoast_head":"\nGoldman Sachs has a stark message on mutual funds and the Mag 7 - Durham Moving Hub<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/durhammovinghub.com\/?p=956\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Goldman Sachs has a stark message on mutual funds and the Mag 7 - Durham Moving Hub\" \/>\n<meta property=\"og:description\" content=\"The S&P 500 is up roughly 9% this year.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/durhammovinghub.com\/?p=956\" \/>\n<meta property=\"og:site_name\" content=\"Durham Moving Hub\" \/>\n<meta property=\"article:published_time\" content=\"2026-05-25T08:04:01+00:00\" \/>\n<meta name=\"author\" content=\"admin\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"admin\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"5 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\\\/\\\/durhammovinghub.com\\\/?p=956#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/durhammovinghub.com\\\/?p=956\"},\"author\":{\"name\":\"admin\",\"@id\":\"https:\\\/\\\/durhammovinghub.com\\\/#\\\/schema\\\/person\\\/bf1f081e7f06a3ab66052e5f6015fd85\"},\"headline\":\"Goldman Sachs has a stark message on mutual funds and the Mag 7\",\"datePublished\":\"2026-05-25T08:04:01+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\\\/\\\/durhammovinghub.com\\\/?p=956\"},\"wordCount\":950,\"commentCount\":0,\"image\":{\"@id\":\"https:\\\/\\\/durhammovinghub.com\\\/?p=956#primaryimage\"},\"thumbnailUrl\":\"https:\\\/\\\/durhammovinghub.com\\\/wp-content\\\/uploads\\\/2026\\\/05\\\/e92f49d95362ba08ab41706a142ed9cc.jpg\",\"articleSection\":[\"Read today's Edition\"],\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\\\/\\\/durhammovinghub.com\\\/?p=956#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/durhammovinghub.com\\\/?p=956\",\"url\":\"https:\\\/\\\/durhammovinghub.com\\\/?p=956\",\"name\":\"Goldman Sachs has a stark message on mutual funds and the Mag 7 - 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