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Jan. 13, 2012, 12:01 a.m. EST
By Mark Hulbert, MarketWatch
CHAPEL HILL, N.C. (MarketWatch) "” Is your portfolio worth more today than it was on Oct. 9, 2007?
That was the day the stock market hit its all-time high, of course"”14,165 on the Dow Jones Industrial Average /quotes/zigman/627449 DJIA +0.17% and 1,565 on the S&P 500 /quotes/zigman/3870025 SPX +0.23% . Despite the bull market that began in March 2009, the Dow today remains 12% below its all-time high. The S&P 500 is 17% below.
Nevertheless, no fewer than 38% of the advisor portfolios monitored by the Hulbert Financial Digest are today ahead of where they stood in October 2007. This is noteworthy, since the normal pattern is for a far smaller proportion of advisers to beat the market over a period as long as 4+ years.
Has the advisory community suddenly become more adept at beating the market?
Unfortunately, no.
The main reason why so many advisers have beaten the major market averages by so much since October 2007 is that those market averages do not reflect the experience of the majority of stocks. On the contrary, those averages are dominated by a relatively small number of large-cap stocks, and the large-cap sector has been one of the weakest in recent years.
Consider the performance of the various benchmarks calculated by Wilshire Associates, the index provider. From Oct. 9, 2007, the date of the stock market's all-time high, through this week, the Wilshire U.S. Large Cap Index /quotes/zigman/123860 XX:W5KLC +0.24% lost nearly 9%. In contrast, Wilshire's US Mid-Cap Index /quotes/zigman/123881 XX:W5KMC +0.28% and US Small-Cap Indexes /quotes/zigman/123890 XX:W5KSC +0.37% are each 4% higher.
Stocks were little changed in afternoon trading after three batches of tepid U.S. economic data tempered investor optimism over strong Italian and Spanish debt auctions. Laura Mandaro has details on The News Hub. Photo: REUTERS
Since there are far more mid-cap and small-cap stocks than there are large-caps, it therefore is probably safe to say that the majority of publicly traded stocks in the U.S. are higher today than in October 2007.
This bifurcated market is perhaps even better illustrated by focusing on two other Wilshire indices. Consider first the Wilshire 5000 index, which represents the combined value of all publicly-traded stocks in the U.S. It is nearly 8% below its October 2007 high, after taking dividends into account. However, if you take away the 500 largest stocks, which is what the Wilshire 4500 index represents, it is close to being unchanged "” down one half of one percent.
Given that many of the advisors tracked by the Hulbert Financial Digest focus on the small- and mid-cap sectors, it therefore is not as big a surprise as it would have been otherwise that so many of them have beaten the large-cap-dominated market averages in recent years.
Perhaps the most important lesson to draw from all this is a reminder that the stock market is not monolithic. It's all too easy to forget this, given our collective obsession with how the market is behaving. To a much greater extent than we often realize, it is a market of stocks rather than a stock market.
Click here to learn more about the Hulbert Financial Digest.
Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.
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Mark Hulbert is editor of the Hulbert Financial Digest, which since 1980 has been tracking the performance of hundreds of investment advisors. The HFD... Expand
Mark Hulbert is editor of the Hulbert Financial Digest, which since 1980 has been tracking the performance of hundreds of investment advisors. The HFD became a service of MarketWatch in April 2002. In addition to being a Senior Columnist for MarketWatch, Hulbert writes a monthly column for Barron's.com and a column on investment strategies for the Journal of the American Association of Individual Investors. A frequent guest on television and radio shows, you may have seen Hulbert on CNBC, Wall Street Week, or ABC's World News This Morning. Most recently, Dow Jones and MarketWatch launched a new weekly newsletter based on Hulbert's research, entitled Hulbert on Markets: What's Working Now. Collapse
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