- This article looks at the worst-performing decile of stocks in the S&P 500 in the first quarter of 2021.
- By examining the tails of the return distribution, we can gain improved insight into different portfolio return drivers.
- One of the most notable features of the laggards list is the bold-faced names of winners from 2020 - Tesla, Amazon, Apple - appearing as laggards for 1Q.
- These underperforming megacaps weighed on capitalization-weighted returns, masking some of the broad-based gains at the constituent-level on the quarter.
In the first quarter of 2021, there was only a single S&P 500 (SPY) component down more than the 19.6% that the S&P 500 lost in the first quarter of 2020. There were only twelve companies down more than 10%. Stocks with positive returns outnumbered stocks with negative returns by more than 4:1. The median performing stock in the index returned over 9%. With these positive performance attributes one might have expected the S&P 500 to produce a better result than the 6.17% total return it achieved in the first quarter. In this article, we will examine the worst-performing decile of the S&P 500 to glean some additional performance drivers for the market benchmark over the first three months of the year.
In the table below, I have listed the 50 worst performing current S&P 500 constituents in the first quarter of 2021.
The next table takes this constituent-level breakdown of the worst performing decile of the S&P 500 and shows the sector distribution of this group of laggards versus the sector weights in the capitalization-weighted S&P 500.
Below are a few takeaways from this list:
- The most notable feature of this laggards list might be that Apple (AAPL), Amazon (AMZN), and Tesla (TSLA) were part of the underperforming cohort. Apple and Amazon added $934B and $718B of market capitalization respectively in 2020, and Tesla returned 743%. Those very strong returns in 2020 gave way to bottom decile performance in the first quarter as investors rotated to cheaper investment options. With these megacaps on the laggards list, they dragged down the cap-weighted returns of the broad market.
- Like Apple, Amazon, and Tesla, there were 15 other companies on the first quarter laggards list that were among the top 50 performers in the S&P 500 for full year 2020. Paycom (PAYC), Take-Two Interactive (TTWO), Advanced Micro Devices (AMD), MarketAxess (MKTX), Xilinx (XLNX), and QUALCOMM (QCOM) were all among the top ten worst performers in the first quarter after very strong 2020s. Conversely, only 2 of the top 50 performers for 2020 - L Brands (LB) and Deere (DE) - were among the top 50 performers for the first quarter of 2021. The Momentum trade faltered in the first quarter amidst a pivot towards a reflationary trade and more value-focused sectors.
- Away from the tech/growth stock story, there were also some high-quality names down the laggards list - Colgate-Palmolive (CL), Costco (COST), Walmart (WMT), NIKE (NKE) - that had nice 2020s, but also probably were some of the stocks getting sold as investors placed reflationary bets on value stocks.
- In "The 6 Worst S&P 500 Stocks Since Covid Lows", I noted that in the one year period from the March 23rd, 2020 market lows that the 6 worst-performing stocks in the S&P 500 were all in the biopharma space. Viatris (VTRS), the laggard in the first quarter of 2021 was one of these companies. The generic pharma company was formed through the merger of Mylan and Upjohn, the Pfizer (PFE) spinoff, and has seen forward projections underwhelm investors.
- Energy was the most over-represented sector on the 50 Best Performing Stocks in 1Q21 and had zero companies make the laggards list as oil and gas prices rebounded in the first quarter.
- While interest rates moved higher on the quarter, rate-sensitive stocks were not overly represented on the laggards list. There was only 1 Utility (Edison International (EIX) and 1 REIT (Alexandria Real Estate (ARE)) on the list.
I hope this article helped frame first quarter returns for readers and allowed some to zoom in on stocks underperforming to start the year. While broad-based returns moderated after the very strong run, the underperforming megacaps in the cap-weighted index returns may have been masked a stronger quarter. In a quarter that may always be remembered for meme stocks and some speculative excesses, gains were fairly broad-based. More notably, losses were hard to come by with the cutoff for the worst performing decile a less than 5% loss on the quarter.
Disclaimer: My articles may contain statements and projections that are forward-looking in nature, and therefore, inherently subject to numerous risks, uncertainties and assumptions. While my articles focus on generating long-term risk-adjusted returns, investment decisions necessarily involve the risk of loss of principal. Individual investor circumstances vary significantly, and information gleaned from my articles should be applied to your own unique investment situation, objectives, risk tolerance and investment horizon.
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Analyst’s Disclosure: I am/we are long SPY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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