S&P 500 Sector Annual Total Returns 2007 To 2020: Chart

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The historical annual returns of the various sectors in the S&P 500 index shows the performance of the sectors during different economic cycles. For instance, last year the IT sector was the best performer with a total return of 44% as the pandemic forced millions of Americans to depend on technology working from homes. In 2008, during the Global Financial Crisis the IT sector fell 43%.

The worst performing sector in 2019 was the energy sector was the energy industry got crushed when crude oil prices plunged and even went negative for a short time. The S&P 500 gained over 18% in total returns last year. This was on top of the 31% return the previous year.

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Source: Novel Investor

Related ETFs:

  • SPDR S&P 500 ETF (SPY)
  • S&P MidCap 400 SPDR ETF (MDY)
  • SPDR Consumer Discretionary Select Sector SPDR Fund (XLY)
  • SPDR Consumer Staples Select Sector SPDR Fund (XLP)
  • SPDR Energy Select Sector SPDR Fund (XLE)
  • SPDR Financials Select Sector SPDR Fund (XLF)

Disclosure: No Positions

The Pyramid Distribution of S&P 500 Total Returns 1825 To 2020: Chart

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The number of years stocks go up is higher than the number of year they go down over the long run. This theory is true for the US equity market also. The number of years the S&P 500 has yielded a positive return much higher than the other way around. The following chart shows the distribution of the returns for the S&P 500 from 1825 to 2020:

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Source: Investment Office

The chart above shows the S&P 500 plunged 40 to 50% only once all the way back in 1931 at the height of the Great Depression. Similarly rise of over 40% in a year has been rare with just 10 years seeing such spectacular increases since 1825.

The key takeaway is that some years are great for stocks while others are not. So over a long period such as a decade or so it evens out leading to a decent return.

Related ETF:

  • SPDR S&P 500 ETF (SPY)

Disclosure: No Positions

The Callan Periodic Table of Investment Returns 2001 To 2020

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Callan has published their popular The Callan Periodic Table of Investment Returns with 2020 data. The importance of diversification is vividly illustrated by this excellent chart published year after year. Last year US Small Caps were the top performers with a return of about 20%. US large caps yielded just over 18%. The adverse effects of the pandemic devastated the real estate sector especially the commercial real estate side as workers fled offices. Hence Real Estate was down around 9%. Relative to the US market, emerging markets also performed well in 2020.

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Source: Callan Institute

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Key takeaway: Before 2020, Small Caps were the winners in 2016, 2013 and 2010 in the entire period from 2001 to 2020. Each year the best returns come from a different asset class. So the need for diversification cannot be under estimated.

Value Stocks Beat Growth Stocks Over The Long Term

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One of the questions on many investors’ mind these days is this: Are Value Stocks Better Than Growth Stocks? Or is value investing dead? This is not surprising since 2020 has been the year for growth. Growth-oriented stocks in the tech, renewable energy, Electric Vehicle(EV), internet retail, etc. industries vastly out-performed value equities. Some of the winners from these industries that shot up substantially last year include Tesla(TSLA), Nio (NIO), Quantumscape Corp (QS), Amazon (AMZN), NVIDIA Corporation (NVDA), etc. The million dollar question is how long will these and other growth stocks will continue to rise. Of course, nobody knows the answer to this question. What do know is in the fight between value and growth, the winner is growth especially in the long run as measured in years or decades. A recent article by Matthew A. Young of Young Investments discussed this topic with supporting historical data. From the article:

Value-Oriented Strategies the Long-term Winner

Indeed, the latter point is undoubtedly true; but, unintuitively, over the long run, value-oriented stocks have performed best.

The chart below shows the long-term performance of $100 invested in high-dividend-yield stocks (value-oriented) versus $100 invested in growth stocks. The data comes from the Kenneth French Data Library. High-dividend stocks are measured by the top 30% of stocks ranked by yield and weighted by market value. Growth stocks are measured as the top 30% of stocks ranked by price to book (the most common metric to distinguish growth from value) and also weighted by market value.

As you can see in the chart, high-dividend stocks are the clear winner. Over the long run, it’s not even close. One hundred dollars invested in high-dividend stocks in June of 1927 is worth almost $1.5 million today. That same $100 invested in growth stocks is worth about $530,000 today.

The reason value-oriented shares outperformed growth shares is not because growth shares don’t have greater growth—they do. Value’s outperformance comes from a rebalancing effect. By example, you might buy a stock when the dividend yield is far above the market and sell that stock at a later date when the yield is far below the market. The same thing happens with growth stocks. A growth stock selling at a high price-to-book value may see growth slow, pushing it out of growth stock territory and resulting in growth funds selling the shares at a lower price.

According to Rob Arnott, chair of Research Affiliates and former editor of the Financial Analyst’s Journal, from 1963 through 2007 this rebalancing effect added 5.4% annually to value strategies and detracted 7% annually from growth strategies. The net effect was a 12.4% advantage for value shares. Since 2007, these figures are about the same. So even though growth stocks have greater growth in their fundamentals than value stocks, that growth differential isn’t enough to overcome the drag that growth strategies suffer from because of the rebalancing effect.

Source: No Easy Choices, Young Investments

The full piece is worth a read.

Key Takeaway: Growth stocks are great to own until the growth stops. So it is wise to not get carried away by spectacular returns and completely avoid value equities. The ideal solution is to diversify among various assets classes such as value, growth, domestic, foreign, real estate, gold, etc.

Disclosure: No Positions