The fourth quarter of 2009 started out on shaky ground with the domestic equity indexes falling sharply in October.
However, a solid November and December wiped out the early losses and put all of the Russell style indexes firmly in the black. Returns for the quarter ranged from 7.9% for the Russell 1000 Growth Index down to 3.6% for the Russell Small Cap Value Index . In the large cap space, Technology continued to lead the way in the final quarter, but significant positive contributions were made by every sector, except Financials which were down slightly. Similarly there was strength across the board in the small cap space led by the Materials sector.
For the year, the equity markets rebounded sharply after 2008's losses carried through the first 10 weeks of 2009. Only the Russell 1000 Value Index returned less than 20% for the year, and the Russell Midcap and Midcap Growth Indexes were both over 40% .
However, all of the domestic indexes are still down between 7 and 13% for the two year period ended December 2009. The clear leader for the year was the midcap growth space as the Russell Midcap Growth Index was up 46.3% for the year. The index was driven by the Technology and Consumer Discretionary sectors. Technology represents 22.7% of the index and returned 68% for the year. The twin impacts of high exposure to Technology and low exposure to Financials drove the growth style indexes ahead of their value counterparts for the year, regardless of market cap.
Looking into 2010, many active managers believe that the minor trend toward fundamentally sound companies that began in the last few weeks of the year will continue, reversing the 2009 trend. Many companies saw their stock prices rise based on cost cutting measures and better than expected (“less bad”) sales. However, for the coming year, those companies that actually can increase their top line growth should have the advantage as the focus begins to shift to a sustainable recovery.
Nathan Behan is a senior investment analyst at Prima Capital Holding Inc., a provider of investment research, technology and portfolio design to the wealth management and retirement industries.
