Fund Managers Hit by Wild Stock Reversals as Only 29% Beat Goals

Just weeks after professional stock pickers celebrated their best year since 2017, the wind in the stock market has shifted, upending their fate.

Only 29% of the core mutual funds tracked by Bank of America Corp. were ahead of their benchmarks in the first month of 2023. This is their worst showing since last July. In 2022, 61% of these funds had beaten their benchmarks.

The reversal in fortune came as stocks defied all bear warnings to mount a powerful rally that lifted the S&P 500 by 6% in January. Money managers who raised their cash holdings during 2022’s bear market may have been caught off guard, with returns hindered by defensive positioning.

“By mid-December, the ‘1H down, 2H up’ equity call was firmly the consensus, driving us to highlight that the key risk heading into 2023 was that of being underinvested or of being too defensive,” BofA strategists including Savita Subramanian and Ohsung Kwon wrote in a note Thursday. “We now hear the reverse mantra ‘up in 1H, down in 2H,’ but we think clients are not fully positioned as such.”