Total return dispersion between best- and worst-performing S&P sectors
Source: Bloomberg Finance, L.P., FS Investments, as of May 25, 2022. Based on quarterly returns since Q1 2002.
- For much of the period between the 2008–2009 global financial crisis (GFC) and the pandemic-induced recession in 2020, equity markets moved steadily higher, and volatility remained relatively mild. Amid this period of peacetime investing, many S&P sectors remained generally in sync with few notable outliers.
- During times of macro stress, however, market activity differed considerably. The performance dispersion between the best- and worst-performing S&P sectors jumped to about 40% during the GFC and again during the pandemic-induced recession in 2020.1 As volatility has spiked again this year, so has performance dispersion.1
- Each historical instance in which sector variance spiked has been very different. In 2008–2009, real estate was the greatest outlier whereas energy was the worst performing sector (among many) in Q1 2020. Year to date, all but two sectors have turned in negative returns, and energy stocks have returned approximately 45%.1
- While we don’t know what’s next, we can learn from other periods of wide return variance. For example, the worst-performing sectors in the past two spikes (real estate and energy) saw strong snapbacks and intra-sector performance quickly narrowed, creating new winners.
- While today’s environment calls for caution, corporate fundamentals remain strong. The broad market dispersion may create opportunities for active investors with the experience, process and flexibility to separate the winners from the losers.