Amid the massive downturn in the S&P 500 in the first quarter of 2020, owning shares in the biggest U.S. companies was the best defensive play for downtrodden U.S. equities investors.
With the S&P 500 shedding 20% of its value in the first quarter, the S&P 500 Enhanced Value index — which tracks stocks with attractive valuations based on metrics such as the price-to-earnings ratio — returned a grizzly negative 38.6%, according to S&P Dow Jones Indices.
With a decline of 14.1%, the best-performing factor was the S&P 500 Momentum Index, a surprise considering the factor follows companies with consistency in their performance.
The relatively good performance of both Momentum and Growth, at negative 14.8% — unusual in a declining market — was in part "associated to the outperformance of the very largest companies," Timothy Edwards, senior director of index investment strategy at S&P Dow Jones Indices, said in an email.
The mega-cap stocks outperformed smaller companies in 2019, and investors have continued to favor the giants like Microsoft Corp., Amazon.com Inc. and Apple Inc. in the downturn.
The S&P 500 Value factor was also a surprisingly low performer considering its defensive nature of measuring the ratios of book value, earnings, and sales to price. The factor returned negative 25.9% in the quarter.
"Value is a bit more subtle but sectors played a major role. An overweight in financials and energy, and especially underweights in information technology and communication services, have proved painful this year," Edwards said.
The S&P 500 Equal Weighted index did similarly poorly, returning negative 27.1%, but Edwards suggested the factor, which applies a fixed weighting of 0.2% to each constituent of the S&P 500, could add value.
"While the past is, notoriously, a poor predictor of the future, for market participants looking for a recent underperformer that might benefit if history were to repeat itself, the S&P 500 equal weight could offer an attractive way to participate in U.S. equities through the upcoming months," Edwards said.
This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.