Active US funds tally best quarterly outperformance since 2007, BofA says

By Lewis Krauskopf

NEW YORK (Reuters) - Actively managed U.S. equity funds in the first quarter posted their best quarterly out-performance since 2007, BofA Global Research strategists said.

In the first quarter, 64% of actively managed U.S. large-cap mutual funds beat their Russell 1000 benchmarks, compared to just 38% last year, BofA’s data showed.

The S&P 500 rose 10.2% in the first quarter, its best first three months of the year since 2019. The Russell 1000 rose about 10%.

The outperformance was "an impressive feat given the strong market rally over the last three months," BofA strategists led by Savita Subramanian said in a note.

Active managers may have gotten a hand from a stock rally that has broadened beyond the megacap technology and growth names that led gains last year.

BofA said that 60% of stocks outperformed the S&P 500 in March compared with less than 40% in January and February.

The recent broadening contrasts with 2023, when the market’s gains were led by a group of seven megacap tech and growth stocks. That narrow leadership weighed on performance of many active funds, which did not hold enough of the massive stocks that were heavily weighted in indexes, such as the Russell 1000 or S&P 500.

This year, two of those seven - Apple and Tesla - have struggled, which benefited many active funds that were underweight those stocks, according to BofA. Apple shares fell 11% in the first quarter, while Tesla sank 29%.

"While healthier market breadth should give managers better odds of selecting stocks that will outperform, a shift in leadership away from mega cap Tech poses a risk to those still betting on last year's winners," the BofA strategists said in a note.

The strategists recommended adding exposure to value stocks as a way to benefit from a continued market broadening.

(Reporting by Lewis Krauskopf; Editing by Ira Iosebashvili and Tomasz Janowski)