Mutual Fundamentals: Funds Widen Tilt to Semis Over Software

Large-cap mutual funds shifted heavily into semiconductors while cutting software exposure to record lows in Q1 2026. Only 29% of these funds are beating benchmarks YTD as they remain structurally underweight the 'Magnificent 7'.

Key Takeaways

• 1.Mutual funds have significantly rotated out of Software and into Semiconductors, reaching the widest exposure gap between the two sub-sectors since at least 2012.
• 2.Large-cap mutual fund performance remains weak, with only 29% of funds outperforming benchmarks YTD, trailing the historical average of 37%.
• 3.Funds remain deeply underweight the 'Magnificent 7' tech giants by 723 bp, largely due to diversification restrictions, and reduced net ownership in each member during Q1.

Table of Contents

• Performance and flows
• Themes in focus: AI, Magnificent 7, IPOs
• Sector positioning
• Stock positioning
• Appendix
• Disclosure Appendix

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