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John Prestbo's Indexed Investor
Dec. 17, 2010, 12:01 a.m. EST
View all John Prestbo's Indexed Investor "º
"¹ Previous Column
Stock investors: put on your rally cap
First Take "º
The Countrywide albatross at B of A
By John Prestbo
NEW YORK (MarketWatch) "” With just a few trading days left in 2010, the winner and loser flags are hoisted and fluttering.
Here are the highlights, as portrayed for the most part by various Dow Jones indexes through Dec. 15:
Buying the 10 highest-yielding Dow stocks and holding them for 12 months has rewarded investors with earnings growth and dividends, says financial adviser Kurt Brouwer, editor of MarketWatch's FundMastery blog.
In the U.S. stock market, the sweetest spot is small-cap stocks (up 25.6% on a total return basis vs. 22.5% for mid-sized and 13.8% for large stocks). The runner-up is growth stocks, which outstripped value 16.5% to 13.7%. At the winning intersection, small-cap growth soared 29%. By comparison, the Dow Jones U.S. Total Stock Market (TSM) Index was about half that, or 15.2% higher.
Among the 10 big industries, basic materials leads the parade with a 27.3% gain, pushed by a 31.7% advance in its chemicals sector; its lagging sector, forestry & paper, also outperformed by rising 11.3%. Health care was the weakest industry, adding only 5.1%; pharmaceuticals were the drag here, carrying a big weight and inching up just 2.7%.
Of the 114 sub-sector niches, the best-performing were precious metals producers, which skyrocketed 82%, and commercial vehicles and trucks, which jumped 62.7%. There was no evidence of any symbiotic relationship between the two. Farming & fishing companies did the worst, dropping 23.9%, followed by alternative fuels, which fell 17.1%.
Elsewhere in the world, stock investors favored emerging markets (up 17.9%) over developed ex-U.S. markets (10.1% higher). By comparison, the Dow Jones Global ex-U.S. TSM Index rose 11.5%. Size-segment performance in both developed and emerging markets mirrored U.S. results, with small outdoing mid-size, which in turn beat large.
In developed markets outside the United States, basic materials again was the top-performing industry, with a 22.6% gain. Utilities brought up the rear, dropping 3.9%. In emerging markets, consumer services leapt the highest (40.6%), followed by technology (up 33.5%) and consumer goods (ahead by 30.9%). Oil & gas took the hindmost (5.1% higher), followed by utilities (a 11.4% advance).
Eight developed countries beat the U.S. total return of 15.2%, and 21 fell short. To no one's surprise, Greece did the worst, plunging 42.1%. Among emerging markets, Sri Lanka took top honors with an astounding 106.9% liftoff, followed by Thailand (up 63.7%) and Argentina (60.9% higher). The Eastern European countries of Bulgaria, Hungary, Romania and the Czech Republic all fell, as did Jordan.
Bonds are doing well for the second consecutive year. Medium-term U.S. Treasury bonds (7- to 10-year maturities) jumped 7.4% on a total return basis, according to Barclays fixed-income index. Long-term bonds (10- to 20 years) did almost as well, returning 7.1%. By comparison, Barclays Aggregate Bond Index returned 5.3%. The Dow Jones Corporate Bond Index gained 6.6% on a total return basis. But mortgage-backed bonds are still under pressure, returning just 4.1%, according to Barclays.
Outside the United States, bonds are weaker. Barclays Global Treasury Index rose 3.5%, and Barclays Global Aggregate Corporate Bond Index returned almost 4%.
Commodities sagged for much of the year but revived in the autumn. The Dow Jones-UBS Commodity Index was 11.2% higher as of Dec. 15, and the momentum is strong going into 2011. Of the nine major sub-indexes, five are up by 20% or more. So-called "softs" are in the lead with a 51.7% leap, powered by cotton's 94.5% levitation. Precious metals are 37.7% higher, led surprisingly by silver (up 71.9%) rather than gold (up 25.5%).
Some commodities are responding to the slowly strengthening global economy; copper, for example, is up 20.4%. The agricultural sector, however, is being propelled by tightening supplies of crops because of bad weather around the globe. The agricultural sub-index is 30.3% higher for the year through Dec. 15, but is 59.1% higher than its low point in early June.
Commercial real estate securities also are strong this year. The Dow Jones U.S. Select REIT Total Return Index jumped 21.2%, boosted by apartment buildings (up 39.8%) and hotels (33% higher). The weakest sectors are mixed industrial and office (rising 1.6%) and health-care facilities (up 10.5%).
REITs are not as prevalent outside the United States, though they are increasing in number. The Dow Jones Global ex. U.S. REIT Index moved 18.1% higher on a total return basis. Real estate operating companies "” which are ordinary companies that happen to manage real estate properties "” did even better, rising 47.2%.
So, 2010 was a good year for investors. But this happy situation was achieved in the same way that made 2008 a disaster "” the markets ended up being highly correlated. The only difference was the direction in which they were moving.
Of course, we hear no complaints about the failure of diversification this time. Investors and markets apparently are destined to be fair-weather friends.
Best wishes for a healthy and happy 2011.
John Prestbo is editor and executive director of Dow Jones Indexes, a joint venture of CME Group, Inc., and Dow Jones & Co., Inc., publisher of MarketWatch. Kathy McGoldrick, Lauren Mulryne and Ross Wiedman contributed research to this report.
Merrill and Countrywide, deals made when the bank appeared to under appreciate the gravity of the financial crisis, continue to be an enduring legacy of the wrong kind at B. of A.
11:39 a.m. Dec. 16, 2010
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