(Bloomberg) — For years, loading up on the biggest US technology stocks delivered a steady stream of riches — and avoiding them was a surefire ticket to the unemployment rolls. In 2026, the opposite has been true.
Mutual fund managers who cut exposure to the volatile tech stocks that have roiled markets this year have been on a tear. Nearly 60% of large-cap mutual funds are outperforming their benchmarks, the highest share since 2007, according to data from Goldman Sachs Group Inc. Large-cap core and growth managers have posted the strongest gains, helped in part by weak returns from Big Tech.
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The S&P 500 Index has been virtually flat seven weeks into the year, but beneath the surface there has been a re-ordering of winners and losers. Tech companies in the index are down more than 4%, while energy and materials producers have rallied at least 15%. Producers of household necessities have jumped 13% along with industrial companies, while financial firms have slipped with makers of non-essential consumer goods.
The disruption has largely been caused by artificial intelligence applications that threaten to upend entire industries. Software firms came in for a hosing a few weeks ago. Then it was insurers, followed by wealth managers, law firms and publishers, among other pockets of the economy. At the same time, investors have been reducing exposure to Big Tech as the group’s weighting in the S&P 500 swelled past 30%, and loading up on companies more tied to the economic cycle.
“Many active managers weren’t necessarily ‘anti tech,’ they just didn’t want to keep paying up for the same handful of crowded megacap and software names, and they weren’t trying to be ‘active’ by hugging the benchmark with a different label,” said Dave Mazza, chief executive officer at Roundhill Financial. “In a rotation where leadership broadens and more sectors start contributing, that willingness to own areas outside of tech is finally paying off as that positioning stops being a headwind and becomes a tailwind.”
Active funds have benefited from sharp rotations across the equity market. That rotation has made market breadth — a measure of how many stocks are participating in a rally — increasingly important for active managers. About 66% of stocks in the S&P 500 are trading above their 100-day moving average, data compiled by Bloomberg show. And the S&P 500 Equal Weight Index climbed to a fresh record high last week.
At the same time, dispersion — the gap between the best and worst performing stocks in the benchmark — has widened to 41 percentage points, ranking in the 93rd percentile since 1980.
The dispersion in returns has come at an opportune time for fund managers who have been trimming exposure to tech since early 2024. That’s especially true when it comes to hard-hit software stocks, where the average large-cap mutual fund entered 2026 under-invested in the group by 24 basis points compared to its weighting in the stock market, when Microsoft Corp. is excluded.
“Since 1990, market breadth and return dispersion have been the two most important drivers of mutual fund performance,” Goldman’s team inclding Ryan Hammond and Daniel Chavez wrote.
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