Q1: Small-Caps Lead Overseas, Large Growth Best In U.S.

April 02, 2009

Among diversified stock ETFs, investors favored emerging markets and growth in Q1. But some sector and alternative funds also outperformed.

 

A broad rebound in stocks at the end of the first quarter of 2009 helped to dampen heavy losses in the early going. But in most cases, a three-week rally in March didn't come soon enough or prove deep enough to overcome the damage of the previous two months.

After getting pummeled in 2008 as the S&P 500 index dropped 37%, investors were greeted in January with an 8.43% decline in returns in blue chip stocks. It got even worse in February as the two-month total returns on the benchmark stood at -18.18% entering the final month of the quarter.

In March, U.S. markets staged a double-digit comeback. The S&P 500 returned 8.76% as every sector felt the positive ripple effect of an easing in global credit markets and optimism that U.S. economic fortunes were on the mend.

Still, the S&P 500 entered the spring quarter with a total return for the year of -11.01%. That's a heavy headwind for investors searching for signs of a bottom. Will they get it in the second quarter? Only time will tell. But several positive areas of the market did begin to reveal themselves in the opening three months of 2009. Let's take a closer look at where those cracks in this recession's armor seemed to open the most.

Taking A Bird's-Eye View

We'll start with a review of the major stock asset classes, using broad strokes with representative exchange-traded funds to paint the first quarter's picture.

As depicted in the chart below (using a combination of data supplied by index providers, fund sponsors and Morningstar Inc.), emerging markets soared way ahead of virtually every other diversified long-only category.

The iShares MSCI Emerging Markets Index (NYSE: EEM), for example, rallied some 16.86 percentage points in the final month to nearly break even for the first three months of the year.

But it's important to note that while EEM remained the most popular ETF to cover developing economies, it wasn't the top performer among its peers. The Vanguard Emerging Markets Stock ETF (NYSE: VWO) didn't rise as much in March, but it didn't stumble as badly as the others earlier in the year. As a result, VWO came out of the first quarter with a return of -0.04%.

 

A Glance At Q1 By Asset Class

Fund

Ticker

Q1 (%)

March (%)

PwShares QQQ

QQQQ

2.11

10.31

SPDR S&P 500

SPY

-11.19

8.32

Vanguard Value

VTV

-16.85

8.20

SPDR Mid Growth

EMG

-2.75

8.59

iShares Mid Value

IJJ

-11.74

7.66

Van Small Growth

VBK

-8.31

9.32

iSh Russ 2000 Val

IWN

-19.29

8.73

iShares Russ 2000

IWM

-14.31

7.77

iShare Emer Mkts

EEM

-0.64

16.86

iSh Int'l Small Cap

SCZ

-11.98

9.69

SPDR Int'l Small

GWX

-13.67

8.22

iShares EAFE Gro

EFG

-14.81

7.92

iShares EAFE

EFA

-16.21

8.39

Vanguard Europe

VGK

-16.84

7.70

iShares Japan

EWJ

-17.54

7.19

iShare EAFE Value

EFV

-18.32

8.98

 

The other big winner among broad asset classifications was Tech. The PowerShares QQQ (Nasdaq: QQQQ) actually managed to finish in the black in Q1, thanks to a last-minute 10.31% push to end the quarter. Again, it wasn't the leader, as several other Tech-focused ETFs did even better. The First Trust Nasdaq-100 Tech Index ETF (Nasdaq: QTEC), which follows a more concentrated benchmark, scored a 10.46% return at quarter's end. Other large-cap-focused Tech funds doing well included:

  • The Internet HOLDRs (NYSE: HHH), up 8.67% in the quarter and 13.54% in March
  • The iShares Dow Jones U.S. Technology Index (NYSE: IYW), which gained 5% in Q1, with an 11.91% push in March
  • The ProShares Ultra Technology ETF (NYSE: ROM), which used leverage to boost its participation in the quarter-ending rally to return 22.32% during March. That boosted its full-quarter gains to 4.51%.

And those were just the large-cap-oriented broad tech ETFs. Several more in the mid-cap range did well, including: The Rydex Equal-Weight Technology ETF (NYSE: RYT), up 6.39% entering Q2; The PowerShares NASDAQ Internet Portfolio (Nasdaq: PNQI), up 9.67% for the first quarter; and the First Trust NASDAQ-100 Equal-Weight Index ETF (Nasdaq: QQEW), which gained 1.79% in Q1.

 

Find your next ETF

Reset All