CHART OF THE DAY: A Tough 2016 For Equity Investors

CHART OF THE DAY: A Tough 2016 For Equity Investors - 10.17.16 EL Chart

 

It's been a rough year and half for equity investors.

 

After selloffs in July and December of 2015, a lot of people are playing performance catchup and chasing the returns of indices like the S&P 500 and Russell 2000. That's been a losing bet for some time now.

 

As you can see in the Chart of the Day, from today's Early Look, high beta, stocks that are the most likely to move with swings in the stock market, got killed last week. High beta stocks were down -2.5% versus low beta stocks which were essentially flat (circled in red). Low beta has been winning the battle in the year-to-date as well, +7.9% versus +6.7% for high beta. (See below for more on how this table is constructed.*)

 

To be clear, we've been advising that investors buy low beta stocks that are in the top 25% of market cap for well over a year now. We've been right on high vs. low beta. Here's how that's worked for market cap year-to-date:

 

  • Bottom 25%: +3.2%; versus
  • Top 25%: +4.2%

 

Based on our contrarian outlook for the U.S. economy and earnings season (here and here), we're sticking with our call to buy low beta, big market cap stocks.

That's been a winning mix all year. 

 

 

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(*The chart above shows equity market "style factors" for companies in the S&P 500. Basically, we rank S&P 500 companies by their style factors comparing those in the top 25% versus the bottom 25% based on performance. For instance, we take the performance of S&P 500 stocks that have the "highest beta," the top 25% of the index, and compare that to the bottom 25% with the lowest beta.)