The lack of investment in artificial intelligence is affecting the performance of large-cap equity funds, according to Goldman. Large-cap mutual funds have struggled to keep up with rising benchmark indices this year as the lack of investment in AI stocks has impacted performance, according to a new report from Goldman Sachs Group Inc (NYSE:GS).
The average large-cap core mutual funds have returned 9% year-to-date, while growth funds have returned 11% and value funds 8%. However, only 36% of funds are outperforming their respective benchmarks, a sharp drop from over half in April and closer to the historical average of 37%.
Goldman strategists led by Ryan Hammond wrote: "Mutual funds benefited from their cyclical tilt, but the lack of investment in AI-related stocks affected performance."
Funds are still suffering from a 107 basis point underinvestment in a basket of AI-related stocks, even when excluding the Magnificent Seven, despite selective additions in names like Palantir (NASDAQ:PLTR), Vistra Energy (NYSE:VST), Snowflake (NYSE:SNOW), and GE Vernova (NYSE:GEV).
At the same time, managers expanded their underinvestment in the Magnificent Seven, which reached 819 basis points at the beginning of the third quarter, compared to 723 basis points in the previous quarter. Goldman stated: "The Magnificent Seven has been volatile year-to-date, but the group has outperformed the S&P 493 by 3 percentage points year-to-date (+13% vs +10%)."
