Where’s the long-term money in softlines?

Investors are still largely putting less emphasis on U.S. softlines stocks, according to Evercore ISI. The sector has been structurally under-owned by the 25 biggest mutual funds in the S&P 500 over the past three years, with softlines currently representing just 76% of its usual weighting in the benchmark index. This situation has remained relatively unchanged over the past three months.

Softlines has seen a decline in market share, falling 14 fewer basis points in June compared to March, and 25 fewer basis points than three years ago. As investors' focus shifts towards AI and technology stocks, the sector's appeal has waned. Out of the eight softlines companies covered by Evercore and included in the S&P 500, six are underweight relative to their index weightings.

The group includes renowned brands such as Nike, TJX Companies, Ross Stores, Ulta Beauty, Deckers Outdoor, Ralph Lauren, Tapestry, and Lululemon. Nike, however, stands as an anomaly. Mutual funds have over-weighted the stock by 157% of its S&P 500 level, making it the most over-owned name within the group. Nike's struggles in athletic apparel, coupled with its elevated ownership, create a challenging technical setup for short-term investors.

Ross Stores has attracted stronger investment interest, holding a 103% weighting in the S&P 500, compared to 70% for TJX Companies. This represents the widest advantage for Ross in at least three years. Evercore has Ross on its Top 5 Outperform group, citing initiatives expected to boost stacked same-store sales growth in the second half of 2026. Analysts also believe that TJX's record of stable performance makes a prolonged underweight position less likely.