Returns By S&P Quality Ranking
Chart of the Week for June 12 - June 18, 2009
The chart above illustrates the difference in performance by quality segment of the stock market, as represented by the Russell 3000 Index. The green bars show the performance from the beginning of the year until March 9, 2009, when the S&P 500 hit a 12-year low. The blue bars show the performance for the following three months.
The chart breaks down the performance of the Russell 3000 Index by quality segment. Each segment corresponds to a different Standard & Poor’s (S&P) Quality Ranking, ranging from A+ (highest) to D (company in reorganization). S&P assigns letter rankings to stocks using a computerized system that is based on earnings and dividend records from the most recent ten years. S&P is a global credit rating, research and risk analysis firm, which publishes credit opinions, research, and ratings on fixed-income securities, issuers of securities and other credit obligations. S&P is not affiliated with ICMA-RC.
As the chart shows, there has been a dramatic reversal of fortune for the stock market since March 9, 2009. While all quality segments have had positive performance during this time period, those stocks ranked below A- by S&P have generally outperformed those ranked A- or above. A+ ranked stocks have returned 24.12% from March 9, 2009 to June 10, 2009, while C ranked stocks have returned 60.49%. Several reasons have been offered for this performance disparity. For example, one theory posits that low-quality stocks were due for a bounce-back because they were the most heavily downtrodden segment of the market in 2008, and thus became oversold.
Shifts and segment differentials in the stock market like the one illustrated above are not uncommon, which is why timing the market is such a difficult exercise, and why diversification is an important tool for achieving long-term, consistent performance.
This illustration was compiled by information from outside sources. These companies are not affiliated with ICMA-RC. This information is being provided for educational purposes and is not intended to be construed as or relied upon as investment advice. ICMA-RC does not offer specific tax or legal advice. Individuals are advised to consider any new investment strategies carefully prior to implementing.
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The performance data quoted represents past performance. Past performance is no guarantee of future results. Investment returns and principal value will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data illustrated. For performance data current to the most recent month end, contact ICMA-RC Services, LLC by calling 800-669-7400 or by writing to 777 North Capitol Street, NE, Washington, DC 20002-4240. Para asistencia en Español llame al 800-669-8216. Performance data current to the most recent quarter end is available by visiting www.icmarc.org.