1Q15 Market: Slow Start Leads to Solid Gains

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Slow Start Leads to Solid Gains

A bearish January gave way to solid first-quarter gains. The small-cap Russell 2000 was the leader among the broad-based domestic indexes, up 4.3% versus gains of 1.6% and 1.0% for the large-cap Russell 1000 and S&P 500 indexes, respectively. The more tech-oriented Nasdaq Composite was also strong with a 3.5% first-quarter return.

New Highs for U.S. Equity Indexes
The three broad-based indexes made new highs in March while the Nasdaq Composite ended the quarter within 3.0% of its March 2000 peak.

Small-Cap Growth Trumps Value in the Near Term
Trailing One-, Three-, and Five-Year Average Annual Total Returns Ended 3/31/15 (%)

Small-Caps Still Strong from 2009 Low
From the March 9, 2009 market low, the Russell 2000 was up 296.3% through 3/31/15, ahead of the Russell 1000, S&P 500, and Nasdaq Composite.

Rising Rates May Not Slow Stocks
From the interest rate low on 5/2/13 through 3/31/15, small-cap and large-cap indexes were up more than 34%—maybe rising rates don’t necessarily spell gloom and doom for equities?

Large is in Charge
Trailing one-, three-, and five-year returns ended 3/31/15 favored large-caps, with the Russell 1000 outperforming the Russell 2000.

Are Non-U.S. Stocks Joining the Bull Party?
Non-U.S. equities performed more in line with their U.S. counterparts. For the quarter, the Russell Global ex-U.S. Small Cap Index returned 3.7% while the Russell Global ex-U.S. Large Cap Index was up 3.5%. However, trailing one-, three-, and five-year results through 3/31/15 were significantly behind their U.S. cousins.

Mid-Cap Magic
Trailing One-, Three-, and Five-Year Average Annual Total Returns Ended 3/31/15 (%)

Good Health, Low Power
Within the Russell 2000, Health Care was the best-performing sector in the first quarter by a wide margin. In contrast, Telecommunication Services and Energy were the worst.

Shorter-Term Strength for Small-Cap Growth
Within small-cap, growth led value (by a large margin) for the third consecutive quarter. The Russell 2000 Growth Index finished the quarter up 6.6% versus a gain of 2.0% for the Russell 2000 Value Index. While trailing one-, three-, five-, and 10-year periods ended 3/31/15 favored small-cap growth, small-cap value was the leader for all periods (15-, 20-, 25-, 30-, 35-year) beyond 10 years.

Micro-Caps Rebound, Mid-Caps Impressive
Micro-caps renewed their winning ways, with the Russell Microcap Index up 3.1% in the first quarter. While 12-month results for the micro-cap index trailed those for small-cap (Russell 2000), three- and five-year returns ended 3/31/15 were higher. Mid-caps continued their impressive ascent, with the Russell Midcap Index up 4.0% during the quarter.

© The Royce Funds

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