Recapping Market ETF Performance in 2013: Part 1

by Wayne Ferbert on October 16th, 2013

We regularly write about using some of the largest market index ETFs with robust options volumes for our Buy & Hedge approach. Each of these ETFs covers a specific asset class for our purposes. We need to regularly look at the performance of these ETFs and assess our next moves.
 
They include the SPY (US Large Cap), MDY (US Mid-Cap), IWM (US Small Cap), EFA (International Developed Markets), and EEM (International Emerging Markets). And for the 2nd straight year in 2013, the US stocks are materially out-performing the International stock categories.
 
Here is the YTD performance:
Compare that to the 2012 full year performance. In 2012, all of these asset classes were much closer in their performance. The highest performer at 15% and the lowest at almost 12%. The distribution of performances was not very wide. There was a lot of beta in 2012.
But not so in 2013 so far. Not only has the US equity category materially out-performed the International category .. but within both the US equity asset class and the International equity asset class, we see distinctly different performance.
 
Look at how materially higher the Small cap has out-performed the mid-cap and how the mid-cap has materially out-performed the Large cap in 2013.  Small cap has definitely been rocking the ‘caz-bah’ so far in 2013 (is that even how you spell caz-bah?)
 
We also see Developed International markets materially out-performing the emerging markets category. Another example of the deviation of returns within the same category.
 
So far in 2013, if you were a stock picker you could have made alpha if you picked well. And of course, you could also have lagged poorly. This kind of distribution shows much less beta in the different asset classes than in 2012. 
 
But what about recent performance? We decided to look a little closer at the performance of the last quarter – so we isolated the performance since July 1st to now. And we see another surprise: the International markets have almost doubled the return of the S&P 500. There have note been very many 3 month windows in the last 2 years where International out-performed the US equity markets. This is an interesting turn in performance.
These are our favorite ETFs and these performance trends are interesting – but what does it mean going forward? Now that we understand the performance numbers, we can tackle that question in Part II tomorrow.
 


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