Analysis of Russell 1000 and Russell 2000 Performance in Q1

In the first quarter, equity markets continued their decline from the fourth quarter of 2007. In the large cap area, the Russell 1000 Index declined by 9.5%. Losses were most pronounced in the technology sector down 15%, telecom down 14.5% and financials down 13.3%. Meanwhile, the best performing sector was consumer staples declining 2.5%, with materials lower by 2.8% and industrials down 5.2%. If one were to isolate performance within the Russell 1000 Index by yield, p/e, capitalization, growth and price/book one would see the following findings:

Yield-- In contrast to what we saw in much of the second half of 2007, those stocks with a higher yield generally outperformed those with a lower yield in the first quarter. Performance of stocks with a yield of 3.3% or greater lost 6.8% while those stocks with no or a very minimal dividend lost 14.5%.

P/E-- Again, very different from what we saw in the fourth quarter. Those stocks which are cheapest on a p/e basis (less than 12.24) lost 8.4% while the highest p/e stocks (those over 24.09) declined by 14.28%.

Capitalization (within Russell 1000)-- There was little statistical difference in performance between the largest names and smallest names within the Russell 1000 Index.

Growth Rates-- Interestingly, those stocks in the top 20% of growth performed the worst during the quarter declining by 14% while those with growth of 0-8.6% lost 7.5%.

Price/Book-- Finally, in the case of price/book you saw a divergence from what we saw out of other metrics as those stocks which are considered least expensive by this measure (0-1.91) lost 12.9% while those with the highest P/B (above 6.12) lost 11.8%. Price/book ratios in between those two areas performed best with the stocks in the 40th-60th percentile in price/book losing just 6.9%.

A quick look at small cap stocks as defined by the Russell 2000 Index shows similar findings with the Index down 9.9%. One key exception is that one sector was able to produce positive results in the first quarter in the Russell 2000 Index-- Energy +1%. Meanwhile the largest decliner was telecom -20.4%, tech -17.6% and health care -15.7%. Other outperformers outside of energy were consumer staples -3.8% and interestingly financials -5.0%. Yield characteristics were similar to large caps while capitalization did not make a huge difference in performance. Faster growth and higher price/book also generally underperformed during the quarter.

Interestingly, over the past two weeks, we have seen a reversal as the market has been led higher by telecom and financials with energy and materials being the only sectors showing negative performance.  Is this a sign of a reversal in leadership? Possibly, but telecom is too small to provide leadership for the market and its quite likely that another shoe or two may drop in the financials although pockets of financials are extremely undervalued at current levels.

To see an analysis of where my portfolio is positioned at the present time visit www.vestopia.com/danw and feel free to make any comments or post any questions that you may have related to the above topics. Lets all hope for a better second quarter.