US stocks posted strong gains in March, with the S&P 500 advancing 4.4%. As a result, in the first quarter of 2021, the stock index returned investors 6.2%. This was largely driven by continued optimism about Covid-19 vaccines and an increase in budget support from the Biden administration.
The outperformance of small and mid caps continued at a strong pace, with the S&P MidCap 400 advancing 4.7% in March, bringing its first quarter performance to 13.5%. Meanwhile, the S&P SmallCap 600 returned 3.3% in March and 18.2% in the first quarter of the year.
On the “factors” side, the stock 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 Unimproved Value Index of 10.8%. In addition to outperforming the market as a whole, value has significantly 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 trend of the past decade, in which value stocks have been the main laggards.
The best-performing factor for the first quarter was “high beta,” with the S&P 500 High Beta index yielding 22.7% in the first quarter of 2021. This index tracks the performance of 100 S&P 500 companies that are the most volatile, which means that 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.
As for sectors, energy stocks lagged in March after a few solid months. However, the S&P Energy Index remains by far the best performing sector measured over the entire quarter, with a return of 30.1%. Financials come next, with a quarterly return of 16%. The strong performance of these two sectors represents the “return” of value stocks seen in the performance of factors.
The worst performing sector in the first quarter was Consumer Staples, returning just 1.2%. This partly explains the poor performance of the S&P 500 Low Volatility Index mentioned above. As noted here, low volatility ETFs have struggled due to the fact that the stocks they contain are generally part of certain sectors that have been struggling lately.
As for Europe, the S&P Europe 350 index rose 6.6% in March and just over 8% in the first quarter of the year. Meanwhile, the S&P UK Index returned 4.1% in March and 5.4% on a quarterly basis.
When it comes to small and mid-cap European stocks, there hasn’t been the kind of outperformance seen in the United States. The S&P Europe MidCap BMI rose 5.4% in March and 6.6% in the first quarter, lower than the S&P Europe 350 index. The S&P Europe SmallCap BMI returned 4.7% in March, also below the return of the main index Europe. However, it outperformed on a quarterly basis, returning 8.9% for the quarter.
Looking at sectors in Europe, energy was the best performer in the first quarter, with returns of 15.1%. However, the financial renaissance followed closely behind, with a quarterly return of 14.3%. Real estate was the only sector to post losses for the first quarter of -2.2%.
In terms of factors, the value continued to outperform the overall market. During the month of March, the S&P Europe Enhanced Value Index returned 10.8%. In the first quarter, it posted a return of 19.1%.