Inside the S&P 500: Secrets of 2011 Performance

The U.S. stock market was one of the best performing developed markets in 2011, yet the S&P 500 managed to turn in only a +2.07% performance with dividends included.

But here’s something you may not know.  Research by investment manager Manning & Napier shows that performance within the S&P 500 companies was extremely uneven in 2011.  “Only a select group of primarily large, slow growth, dividend paying stocks experienced strong performance in 2011,”  reveals their research.

What does that mean?  Here’s a breakdown.  If you removed the contribution of the top ten best performing stocks, the S&P 500 would have returned only -1.6%.  Remove the top 20 best performing stocks, and the S&P 500 return would drop to -3.49%.   And remove the top 30 stocks, measuring only the 470 remaining companies, and the S&P 500 return would drop to -5.1%.

In what Manning & Napier calls striking results, “only 30 stocks in an index of 500 meant the difference between returning 2.07% and returning -5.1%, a spread of more than 7.00%!” 

Why does this matter? While it is helpful to compare your performance against an index, don’t get too hung up on the results.  As in 2011, the index may not always measure a representative slice of the broader market, and your portfolio may do better or worse in a given year. In 2011, some slow-growing, dividend payers did very well, but the same may not hold true in other years, when more growth-oriented stocks may reign supreme.

In investing, you need to pursue your own path. Chasing performance, even that of an index, can lead to disaster.  Many investors lagged behind the S&P 500 in 1999, when the tech sector mushroomed to over 29% of the index.  Financial stocks peaked at over 22% of the index in 2006 before beginning their huge decline.  The takeaway? The S&P 500 index is a useful benchmark, but it’s not necessarily a model to follow slavishly in managing your personal portfolio.

About Mari Adam

Mari Adam, Certified Financial Planner™ has been helping individuals and families chart their financial futures for over twenty-five years. Have a question about your financial situation? Ask Mari!


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