Xin Lang Cai Jing·2026-02-20 16:31Core Insights - The performance of large-cap mutual funds has improved significantly as many fund managers have reduced their exposure to large technology stocks, with nearly 60% of these funds outperforming their benchmarks, the highest rate since 2007 [1][11] - The S&P 500 index has seen a reshuffling of winners and losers, with technology stocks declining over 4%, while energy and materials sectors have risen by at least 15% [1][11] - The volatility in the market is largely attributed to the potential disruption caused by artificial intelligence (AI) across various industries, leading to significant declines in software companies and other sectors [1][11] Group 1 - Many active fund managers are not necessarily anti-tech; they are reluctant to pay high premiums for crowded large-cap and software stocks, and strategies that diversify away from tech have started to yield returns [2][12] - The market breadth, which measures how many stocks are participating in the rally, has become increasingly important for fund managers, with about 66% of S&P 500 constituents currently above their 100-day moving average [5][14] - The dispersion, or the gap between the best and worst-performing stocks in the benchmark index, has widened to 41 percentage points, placing it in the 93rd percentile since 1980 [8][17] Group 2 - Since 1990, market breadth and return dispersion have been the two most important drivers of mutual fund performance [10][19] - Active funds have benefited from the dramatic rotation in the stock market, with the equal-weighted S&P 500 index reaching a record high recently [5][14] - Fund managers who have consistently reduced their exposure to technology stocks since early 2024 are seeing timely returns as the performance divergence expands, particularly in the software sector [8][17]