Historic asset performance is no indicator of future returns. However, looking back at how asset classes and equity styles have performed can sometimes provide insight. Previously held expectations for certain levels of returns or relative returns among asset sectors can be affirmed or challenged when viewed in the context of the actual performance observed.
During the first quarter of 2012 and within the U.S. equity markets, large capitalization growth shares were the top performing style at 14.7 percent. These large-cap growth stocks outperformed large-cap value oriented stocks by about 3.6 percent during this same time frame.
Small capitalization growth equities returned approximately 13.3 percent during the first quarter of 2012. As compared to the large-cap growth equities, the small-cap growth stocks underperformed by 1.4 percent.
While a wide variety of factors influence the relative performance of large-cap and small-cap stocks, one differentiating factor is likely the dividend orientation of larger capitalized companies. Relatively strong cash flows and healthy balance sheets have allowed dividend paying companies to continue making distributions to shareholders and even increase these dividends in some cases.
Relative returns within the value style of equities tell a slightly different story in the first quarter. Smal-cap stocks returned 11.6 percent in the first quarter of 2012. Mid-cap and large-cap value shares returned approximately 11.4 percent and 11.1 percent, respectively, during this same period. While different, the relative returns of these companies’ shares were fairly close to one another.
Overall, U.S. equity returns for the first quarter were positive. Growth stocks, whether large- or small-cap, outperformed value and blend stocks.
Looking at a somewhat longer time frame provides a different perspective. Since the stock market lows in March of 2009, mid-cap value shares have outperformed the other equity styles. Large-cap blend, those equities which are not value or growth, have underperformed the other style types since March 2009.
Comparing past expectations of future returns to the actual returns can provide helpful insights. Ongoing learning and adapting to changing market conditions will better position stock market investors for more profitable future returns.
Kirby Brown is the CEO of Beneficial Financial Group in Salt Lake City.