In this episode of The Market Measure, we explore whether the S&P 500's positive performance in 2025 may signal it's time to look at equities elsewhere. We’ll review recent U.S. and global market dynamics, highlight the long-term success of legends like Warren Buffett and the S&P 500 Dividend Aristocrats and examine the challenge of consistently outperforming the market. How many active funds do you think stayed above average over the past five years? Stay tuned to find out!
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[TRANSCRIPT]
Ben Vörös:
Hello, my name is Ben Vörös,
Dasha Selivanova:
and I'm Dasha Selivanova.
The S&P 500 might now be in the green for 2025, but is it time to look at equities elsewhere?
Ben Vörös:
In the next few minutes, we'll review recent U.S. and world market dynamics, as well as offering a longer-term perspective on two outperforming legends, Warren Buffett and the Dividend Aristocrats.
Dasha Selivanova:
We'll also examine just how hard it is to outperform consistently. How many active funds do you think stayed above average over the last five years? To find out, stay tuned to this edition of
Ben Vörös, Dasha Selivanova:
The Market Measure.
Ben Vörös:
The S&P 500 had a turbulent start to the quarter as market participants assessed the impact of the Trump administration's tariff announcement after the market close on April 2nd. The U.S. bellwether, which averaged daily moves of just 1% in March, declined 10% over the following two sessions.
Then, following the announcement on April 9th of a 90-day tariff pause on all trading partners outside China, the S&P 500 saw a massive rebound with its 10% surge on the day of the announcement, the biggest gains since the early days of the Covid-19 pandemic in 2020.
Equities were given the further boost a month later when the U.S. and China agreed to a 90-day truce in their trade conflict. As of now, the S&P 500 clawed back all of its losses and some since the tariff announcement and is roughly flat year-to-date.
The early April selloff was one of the most volatile in recent market history. The VIX, already elevated near 30, ahead of the tariff news, increased into the mid-50s during several intense trading days. One-month realized volatility also spiked to its highest level since 2020. Volatility remained high heading into the 90-day tariff pause announced on April 9th, but then declined gradually and finally dipped below 20 on May 12th for the first time since March.
Dasha Selivanova:
In international equity markets, we saw a change in leadership as U.S. stocks, which vastly outperformed in the decade to 2024, have lagged major peers in both Q1 and Q2. This quarter, the S&P Latin America 40 grew by 8%, followed by the S&P World Ex-U.S. and the S&P Europe 350, which both increased by 6% versus a 4% gain for the S&P 500.
With the recent outperformance of stocks outside the U.S., some market participants have been asking whether it's time to reconsider U.S. equity exposure as its weight within the S&P World Index surpassed 70% last year. While we don't know what the future brings, underweighting U.S. equities’ largest stocks, or the largest sector, I.T., within the S&P World Index would have meant foregoing significant returns in the past couple of years.
To further illustrate the challenge of identifying outperforming segments in advance, take a look at this table showing the best-performing among the equity markets of the world's three most populous countries the U.S., India and China for each calendar year since 1998.
As you can see, the leadership among the three countries change frequently, with no country holding the lead for more than three consecutive years, which highlights a key lesson. Relying solely on one country's equity market may mean missing out on potential sources of return by maintaining exposure across multiple geographies. Investors may be able to mitigate country-specific risks and benefit from the power of diversification.
Ben Vörös:
Diversification may work not just across geographies, but also across sectors and factors. Let's take a look at the performance of S&P 500 sectors and factors, which saw changes of leadership in recent months. Some of the sectors that pulled down the S&P 500 in Q1 have emerged as leaders this quarter. I.T. and Consumer Discretionary, which were the two worst-performing sectors in Q1, turned into the two best performers in Q2, outperforming the S&P 500 by 6% and 4%, respectively.
Energy and Health Care Q1’s two top performers turned into the worst laggards in Q2, lagging the 500 by 14% and 11%, respectively.
Similar to sectors, most S&P 500 factors’ relative performance also reversed between this year's first and second quarters. Defensive factors have generally lagged in Q2, having outperformed in Q1. Momentum is among the minority of indices that outperform both in Q1 and Q2, while Low Volatility’s massive 12% outperformance in Q1 means that it remains an outperformer year to date, despite trailing the S&P 500 by 7% so far this quarter.
In times of high uncertainty, rapid changes in leadership often occur, and it pays not to underestimate the power of diversification, as a broad exposure across market segments and geographies may provide a smoother ride.
Dasha Selivanova:
SPIVA, which stands for S&P Indices versus Active, measures how active investment managers perform compared to their relevant benchmarks. The Persistence Scorecard extends this analysis by examining whether those actively managed funds that outperform do so consistently over time.
This is important because even in challenging years for active managers, some still beat the benchmark. The key question is did they outperform due to luck or genuine skill? Over time, skill tends to persist while luck fades. By analyzing above-median and top-quartile performance over three- and five-year intervals, we can see how many active managers stay consistently above median.
So what does the data tell us?
The freshly released Year-End 2024 U.S. Persistence Scorecard demonstrates that consistent outperformance, both relative to peers and versus the benchmark, is indeed typically hard to find. As the saying goes, past performance does not guarantee future results. Among top quartile large cap funds within all reported active domestic equity categories as of December 2020, not a single fund remained in the top quartile over the next four years.
The results are not much improved when lowering the bar from the top quartile to the top half. As this chart illustrates, the percentage of top half actively managed domestic equity funds consistently remaining in the top half over a five-year period was less than a random distribution would suggest, evidence that active outperformance when it occurs tends to be the result of luck rather than genuine skill.
For more results, check out the Year-End 2024 U.S. Persistence Scorecard, available on our website.
Ben Vörös:
In the beginning of May, the S&P 500 Dividend Aristocrats celebrated the 20th anniversary of its launch. The index tracks companies within the S&P 500 that have consistently raised their dividends for at least 25 consecutive years, indicating financial stability and disciplined growth.
Over the past two decades, the S&P 500 Dividend Aristocrats has maintained a strong dividend growth rate. As this chart shows, the index's dividend growth since inception at an annualized rate of 8.1% is more than three times the approximate 2.6% annualized inflation rate over the same period.
For a further 19 fun facts about the S&P 500 Dividend Aristocrats, visit S&P Dow Jones Indices’ website and check out the paper, titled, “Celebrating 20 Years of S&P 500 Dividend Aristocrats with 20 Fun Facts.”
In the beginning of the month, I had the privilege of attending the Berkshire Hathaway Annual General Meeting and witness history firsthand. Warren Buffett, legendary investor and long-time boss of Berkshire, announced his resignation as CEO, effective 31st December 2025, handing the reins to Greg Abel, his longtime lieutenant.
During Buffett's six decades at the helm, Berkshire Hathaway's returns have been spectacular as the conglomerate's shares soared over 6,000,000% between December 31st, 1964, and the beginning of May this year. The S&P 500 total return was approximately 38,000% over the same period.
Most of Berkshire’s outperformance came in the first half of Mr. Buffett's tenure. This chart shows that the annualized rolling 10-year outperformance of the Omaha-based conglomerate versus the S&P 500 has been on a steady downward trend over the decades. The Oracle of Omaha’s 10-year annualized offer averaged 16.6% between 1975 and 2000, versus 2.4% between 2000 and 2025.
Given its market capitalization of over $1 trillion, it would be an extraordinary feat if Berkshire delivered similar returns in the next 60 years as it did in the past 60. Nevertheless, Warren Buffett will no doubt get his place in the Mount Rushmore of history's best investors.
Dasha Selivanova:
At S&P Dow Jones Indices, we measure the markets.
Ben Vörös:
And this was The Market Measure.
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