According to BofA Global Research, professional stock pickers who run U.S. stock mutual funds had a rough month of June. In the first half of the year, only a small majority beat their benchmarks.
For the second month in a row, actively managed U.S. large-cap mutual funds did worse than their benchmarks in June. According to a July 2 note from BofA strategists, only 40% of managers beat their Russell 1000 benchmark RUI. They wrote that as of June, 55% of these funds were ahead of their benchmark, which is “well above the annual average of 37%.”
The U.S. stock market has climbed this year on the back of a massive runup in shares of so-called Big Tech companies such as Nvidia Corp. NVDA, -1.91% Facebook parent Meta Platforms Inc. META, +5.87% and Google parent Alphabet Inc. GOOGL, +2.57% GOOG, +2.44%. The S&P 500 index closed at a fresh record high on Wednesday, up 16.1% in 2024, with BofA citing its “narrow breadth.”
Active mutual funds saw a “lackluster end to a strong first half” for the U.S. large-cap stock market, the BofA report says. Investors turn to actively managed mutual funds and exchange-traded funds in hopes they will deliver market-beating returns that make their higher fees worth paying.
Yet professional stock pickers typically struggle to beat low-cost passive funds tracking the S&P 500.
Active ETFs are appealing to investors.
According to FactSet data, passive index funds in the ETF industry manage trillions of dollars’ worth of assets. The popular SPDR S&P 500 ETF Trust SPY alone is in charge of $548 billion. Active ETFs are a big part of the market, but they are still a small part of the whole industry.
A report from State Street Global Advisors says that U.S.-listed active ETFs have brought in $130 billion this year, which is 32% of all exchange-traded fund inflows through June. Matthew Bartolini, head of SPDR Americas research at State Street, said in the note, “They are now just $3 billion away from breaking their calendar year record set in 2023.”
One study from JPMorgan Chase & Co. at the end of last month says that active ETFs only make up about 7% of the $9 trillion in assets in the U.S. exchange-traded fund industry. Analysts at JPMorgan said in a note, “We expect ETFs to take more market share from mutual funds in the actively managed universe.”
FactSet data shows that the S&P 500 SPX rose 0.5%, the technology-heavy Nasdaq Composite COMP rose 0.9%, and the Dow Jones Industrial Average DJIA fell 0.1%. This meant that the U.S. stock market ended mostly higher on Wednesday.
Before the July 4th holiday, U.S. stocks stopped trading at 1 p.m. Eastern time on Wednesday. Thursday is Independence Day, so the U.S. market will be closed to observe the holiday.
