Month in the markets: value rally in US and Europe continues

This outperformance of value marks a reversal of the pattern of the past decade, during which value stocks were major laggards.

US stocks saw strong gains in March, with the S&P 500 rising by 4.4%. As a result, over the first quarter of 2021, the headline index returned investors 6.2%. This was largely driven by continued optimism surrounding Covid-19 vaccines and a ramping up of fiscal support from the Biden administration.

Small-cap and mid-cap outperformance continued apace, with the S&P MidCap 400 rising by 4.7% in March, bringing its performance for the first quarter to 13.5%. Meanwhile, the S&P SmallCap 600 returned 3.3% in March and 18.2% in the year’s first quarter.

When it came to ‘factors’, value continued to outperform. The S&P 500 Enhanced Value Index returned 7.7% in March, while the S&P 500 Value returned 6.3%. On a quarterly basis, the enhanced value index returned 19.3% and the non-enhanced value index 10.8%. As well as outpacing the wider market, value notably outperformed growth. The S&P 500 Growth index returned 2.7% in March and 2.1% in the first quarter of the year. This outperformance of value marks a reversal of the pattern of the past decade, during which value stocks were major laggards.

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The best-performing factor for the first quarter was ‘high beta’, with the S&P 500 High Beta Index returning 22.7% in the first quarter of 2021. This index tracks the performance of 100 companies in the S&P 500 that are the most volatile, meaning they are the most sensitive to changes in market returns. Its opposite, the S&P 500 Low Volatility index, which tracks the 100 least volatile stocks in the S&P 500 returned 3.8% in the first quarter.

When it came to sectors, energy stocks lagged in March following a strong few months. However, S&P Energy Index was still by far the best-performing sector measured over the whole quarter, returning 30.1%. That was followed by financials, with a 16% quarterly return. The strong performance of these two sectors represents the ‘return’ of value stocks seen in factor performance.

During the first quarter, the worst-performing sector was consumer staples, with a return of just 1.2%. This goes some way in explaining the poor performance of the S&P 500 Low Volatility Index mentioned above. As pointed out here, low volatility ETFs have struggled due to the stocks found in them typically being part of certain sectors that have struggled lately.

When it comes to Europe, the S&P Europe 350 rose 6.6% in March and just over 8% in the first quarter of the year. Meanwhile, the S&P United Kingdom index returned 4.1% in March and 5.4% on a quarterly basis.

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When it came to Europe’s small and mid-cap stocks, there was not the sort of outperformance seen in the US. The S&P Europe MidCap BMI returned 5.4% in March and 6.6% over the first quarter, less than the S&P Europe 350. The S&P Europe SmallCap BMI returned 4.7% in March, also below the return of the headline Europe index. However, it did outperform on a quarterly basis, with its return sitting at 8.9% over the quarter. 

When it came to sectors in Europe, energy was the best performing in the first quarter, with returns of 15.1%. However, a resurgent financials was close behind, with a quarterly return of 14.3%. Real Estate was the only sector to post losses for the first quarter of the year of -2.2%.

When it came to factors, value continued to outperform the broad market. Over the course of March, the S&P Europe Enhanced Value index returned 10.8%. Over the first quarter, it returned 19.1%.