Active Funds Enjoy a Great Year Thanks to Cash, Not Stock Picks
Professional stock pickers are beating the market in a scale not seen in more than a decade. That’s the good part of the story. The underwhelming part: They did it by parking money in cash, instead of picking the right companies.
Roughly 50% of actively managed mutual funds are ahead of their benchmarks this year, compared with the 10-year average hit rate of 34%, according to data compiled by Goldman Sachs Group Inc. That’s their best showing since 2009.
Their secret for success was moving money to cash, which not only helped preserve capital during the bear-market rout but also increasingly offered higher yields as the Federal Reserve raised interest rates from near-zero. Mutual funds have boosted their cash holdings this year at the fastest pace since the global financial crisis, with the allocation spiking to 2.4% from a three-decade low of 1.5%.
The cash hoarding is “aiding their outperformance,” Goldman strategists including Cormac Conners wrote in a note. “However, on a pure stock selection basis, the portfolio of the average mutual fund has trailed the Russell 1000.”