Q1 Performance by Market Cap and Sector

Using data from Standard & Poors, I created the following table to help investors quickly see what worked and what didn’t work in March and in Q1 by sector and market capitalization. For March, deviations of 2% or greater are denoted by green or red (positive or negative relative performance of the sector vs. the index) and 5% or greater for the quarter.

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While the returns for the Russell indices by market cap were all very close, the S&P 600 stood out from the crowd, helped by a strong close to the quarter. Better performance in Energy, Financials (especially) and Technology compared to the S&P 500 drove the difference, overcoming particularly weak Healthcare.

As a quick but overly simplistic check, I used the S&P 600 sector weights on the S&P 500 returns and came up with the exact same -9.92% return. In other words, it appears that the better performance of the Small-Caps can be explained entirely by the composition of the index, though clearly there were some large deviations between the returns of those sectors that netted out.

Energy: For the month, large stocks continued to perform poorly, leaving the performance for the quarter significantly worse than that of smaller companies though ahead of the S&P 500. Standouts in the S&P 500 included EOG Resources (EOG), Nabors Industries (NBR) and Range Resources (RRC) on the positive side and Tesoro (TSO), Valero Energy (VLO), Sunoco (SUN), Marathon Oil (MRO) and National-Oilwell Varco (NOV) on the downside.

Materials: The sector performed relatively well across market capitalizations, though Mid-Cap names had a tough March. In the S&P 500, Nucor (NUE) was very strong, while Titanium Metals (TIE) was extremely weak.

Industrials: The sector also performed relatively well across market capitalizations, with the large companies enjoying a particularly strong March. Ryder System (R) and CSX (CSX) were the best performers in the S&P 500, while the largest decliners included Precision Castparts (PCP), Cummins (CMI), Cooper Industries (CBE), Monster Worldwide (MNST), Textron (TXT) and Jacobs Engineering (JEC).

Consumer Discretionary: This sector tracked the overall market for the S&P 400 and S&P 600 components, with the larger companies providing slightly above-market returns. Big Lots (BIG) and Pulte Homes (PHM) were the big winners in the S&P 500, while the laggards included Apollo (APOL), Harman International (HAR), Meredith Corporation (MDP) and Expedia (EXPE).

Consumer Staples: The month of March was strong for the entire sector, leaving the names ahead of their respective benchmarks for the quarter, especially larger names. Wal-Mart (WMT) was the best performer, while dogs included Constellation Brands (STZ), Dean Foods (DF), Supervalu (SVU) and Whole Foods Market (WFMI).

Health Care: Below-index performance across all market capitalizations was somewhat surprising, with March in particular quite challenging for the sector. The smaller the capitalization, the worse the relative performance was. S&P 500 winners included Celgene (CELG) and Zimmer Holdings (ZMH), while the biggest losers included WellPoint (WLP), Schering-Plough (SGP), UnitedHealth (UNH), Humana (HUM), Merck (MRK), Coventry Health Care (CVH) (all insurance companies), and Waters Corporation (WAT).

Financials: Performance was vastly different by market capitalization, with the starkest contrast in March. Small-Cap names performed almost 10% better than their larger peers. The steeper yield curve and the more conservative business practices pulled the babies out of the bath water. S&P 500 winners included Public Storage (PSA) and Hudson City Bancorp (HCBK), while the worst performers included Bear Stearns (BSC), Ambac (ABK), MGIC Investment (MTG), CIT Group (CIT), Lehman Brothers (LEH), XL Capital (XL), National City Corporation (NCC), Countrywide Financial (CFC), MBIA (MBI) and Fannie Mae (FNM).

Technology: March performance was relatively strong, but the sector still was one of the worst performers during the quarter. Yahoo (YHOO) and Teradyne (TER) were the sector’s best names in the S&P 500, while Motorola (MOT), NVIDIA (NVDA), Jabil Circuit (JBL), Google (GOOG), Autodesk (ADSK) and SanDisk (SNDK) were among the worst.

Telecommunication Services: This extremely small sector, especially outside of the S&P 500, had very strong performance. No stock stood out on the upside, while significant damage was done technically to Sprint (S) and Qwest (Q).

Utilities: Despite the decline in Treasury rates, the sector performed below-average across all capitalizations despite some recovery in March. No stock stood out on the upside, while AES (AES), CMS Energy (CMS), Nicor (GAS), and Allegheny (AYE) impacted the S&P 500 negatively.

Key Takeaways

• Market Capitalization in general not a significant performance driver
• Healthcare and Technology were very weak
• Investors “cleaned up” with “dirty” economy (Energy, Materials, Industrials)
• Stark performance differences within Financials signal investor interest???
• Not surprisingly, then, “Value” beat “Growth”

Thrillers and Killers

• 5 biggest winners: BIG, PHM, EOG, CELG, R
• 5 biggest losers: BSC, ABK, MTG, CIT, WLP
• Strongest Mega-Cap (Top 50): WMT
• Weakest Mega-Cap: GOOG

Disclosure: Long TIE, WLP and ZMH