Mutual funds are picking up beaten-down growth stocks after a sharp sell-off spurred by fears of higher interest rates, according to Goldman Sachs. The Wall Street firm looked at the quarter-end positioning of 534 actively managed mutual funds and found that fund managers shifted toward growth and away from value into 2022. Goldman said this trend has likely persisted into the first quarter. "Since the start of the year, mutual fund returns have become more correlated with Growth relative to Value, suggesting managers have likely continued to sell the Value rally and buy the Growth dip since the start of the year," Goldman strategists said in a recent note. Wild price swings has gripped Wall Street in 2022, driven by heightened geopolitical tensions and the Federal Reserve's hawkish policy pivot. The tech-heavy Nasdaq Composite bore the brunt of the sell-off and dipped into correction territory, falling more than 10% from its record high. Tech stocks are seen as sensitive to rising yields because increased debt costs can hinder their growth and can make their future cash flows appear less valuable. "Mutual fund underweight positions in high growth stocks were a significant headwind to performance in 2020 and 2021," Goldman said. "However, this underweight has benefited mutual fund returns during the recent growth sell-off." Mutual funds collectively added exposure to Amazon and Alphabet the most in the fourth quarter, according to Goldman. Both tech giants reported stellar fourth-quarter earnings report last month, giving their shares a big boost. Netflix was another popular add for fund managers in the fourth quarter, Goldman said. The streaming giant reported a big miss on subscriber growth, which resulted in a sharp decline in share price. Netflix's stock is down more than 30% this year. Cognizant Tech and Global Payments were also favorites for mutual fund managers in the fourth quarter.
A trader works at the New York Stock Exchange in New York, the United States, Feb. 25, 2022.
Wang Ying | Xinhua News Agency | Getty Images
Mutual funds are picking up beaten-down growth stocks after a sharp sell-off spurred by fears of higher interest rates, according to Goldman Sachs.