SUMMARY
Drastic volatility hit the U.S. stock market in the first half of 2020. The S&P 500® declined by 3.1%, with negative returns also posted by the S&P MidCap 400® (-12.8%) and the S&P SmallCap 600® (-17.9%).
The S&P 500 reached an all-time high on Feb. 19, 2020, followed by a rapid 33.8% drop through March 23, 2020, as pandemic-driven restrictions suppressed economic activity. In April, stocks rebounded and the S&P 500 posted its best monthly return since January 1987. Encouraged by government stimulus programs and the expectation of economic reopening, the stock market continued its recovery in May and June.
In 11 out of the 18 categories of domestic equity funds, the majority of funds continued to underperform their benchmarks. For example, 67% of domestic equity funds lagged the S&P Composite 1500® during the one-year period ending June 30, 2020. Additionally, the majority of large-cap (63%) and multi-cap (65%) funds lagged their benchmarks. In contrast, mid-cap and small-cap active funds performed relatively better. Approximately 56% of mid-cap and 53% of small-cap active managers outperformed their benchmarks for the one-year period (see Exhibit 1).
Growth funds led across all capitalization segments in the one-year period; 74% of large-cap growth, 83% of mid-cap growth, and 89% of small-cap growth funds beat their benchmarks. However, their recent success was not enough to offset previous underperformance; 92% of large-cap growth, 74% of mid-cap growth, and 75% of small-cap growth funds underperformed over the past 15 years.
Value funds continued to lag their benchmarks over all time horizons; 73% of large-cap value, 59% of small-cap value, and 91% of multi-cap value funds underperformed their benchmarks over the past year. Mid-cap value funds were the only exception, with 62% outperforming the S&P MidCap 400 Value for the one-year period. For all investment horizons longer than three years, however, more than two-thirds of value funds across all capitalization segments underperformed their benchmarks.
Despite divergent results over the one-year horizon, both growth and value funds underperformed their benchmarks over the past decade. Large-cap (growth 82%, value 86%), mid-cap (60%, 81%), and small-cap (57%, 90%) all delivered painful results.
