As far as I know, there is no bug in Xcode regarding this, and Xcode never supported such a mechanism (automatically adding/removing sources from a target based on availability in file-system).
The Group variations (groups-representing-a-folder vs. "regular" groups) merely allow you flexibility in how your project tree looks visually - should it closely follow your repository on disk, or be more "human-readable" and descriptive - regardless of the placement of sources in the repository.
I'm speaking of all Xcode versions I worked with - i.e. v1.0b2 to v11.3
In any way, I admit it WOULD BE NICE to have such a mechanism as a new feature (we could pledge Apple for this).
A way to do it now, could be to build a tiny new "Compiler" whose input is a Folder path, and whose "Generated code" would be the set of source files in that folder. If we add such a 'compiler' as a build rule to our target --- we might achieve the desired effect.
If you want to dig in this, follow the way Protobuf can be added into Xcode projects, and how CoreML models are handled in an Xcode target.