SOURCE: Russell Investments

Russell Investments

September 17, 2013 13:35 ET

Taper Trail: Interest-Rate Sensitive & Dividend-Oriented Stocks Have Shown Sharp Decline Since FOMC Opened Policy Shift Dialogue on May 22, According to Russell Indexes

SEATTLE, WA--(Marketwired - Sep 17, 2013) -  Interest-rate sensitive sectors and dividend-oriented stocks have declined sharply since Federal Reserve Chairman Ben Bernanke opened discussion on ending its historic bond buying program, sending long-term Treasury yields up nearly a full percentage point. In addition, investors have gravitated toward more dynamic-oriented, higher risk stocks during this time period, as illustrated by the Russell Indexes.

  • The U.S. large-cap Russell 1000® Index has returned 2.8% from May 22 through September 13, compared to an 18.2% return for 2013 through May 21. From May 22 through September 16, the Financial Services sector within the Index returned just 1.7% after returning 22.1% for 2013 through May 21. And the Utilities sector lost (-5.4%) in the period between May 22 and September 16 after returning 16.5% YTD through May 21.

  • After underperforming the Russell 1000® Defensive Index by more than 1% for 2013 YTD as of May 21, the Russell 1000® Dynamic Index outperformed its Defensive counterpart by more than 3.5% in the period between May 22 and September 16.

  • The Russell 1000® High Dividend Yield Index, which screens and selects high dividend yield companies from within a universe of high quality and financially sound stocks, gained 0.2% from May 22 through September 16, after gaining 18.9% for 2013 YTD as of May 21.

"We believe that tapering will indeed occur for policy, as well as technical, reasons. The 'new information' aspect of the taper that markets still need to price in will be the precise amount, and perhaps most importantly, how long of a taper runway the Fed will give," said Stephen Wood, Chief Market Strategist at Russell Investments. "Since Bernanke's taper comments in May, we have seen a measurable softening in interest-rate sensitive, yield-oriented, 'bond-like' areas of the equity market." 

Index Jan 1, 2013 - May 21, 2013 May 22, 2013 - Sept 16, 2013
Russell 1000 Index 18.2% 2.8%
Russell 1000 Defensive Index 18.8% 1.0%
Russell 1000 Dynamic Index 17.5% 4.6%
Russell 1000 High Dividend Yield Index 18.9% 0.02%
Russell 1000 Index Sector    
Technology 9.5% 2.7%
Health Care 24.2% 5.9%
Consumer Discretionary 21.4% 5.2%
Consumer Staples 20.4% -0.1%
Energy 15.4% 1.3%
Materials & Processing 10.3% 3.8%
Producer Durables 18.8% 6.0%
Financial Services 22.1% 1.7%
Utilities 16.5% -5.4%

Source: Russell Investments. 

Please note: Indexes are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment. Russell's publication of the Indexes or Index constituents in no way suggests or implies a representation or opinion by Russell as to the attractiveness of investing in a particular security. Inclusion of a security in an Index is not a promotion, sponsorship or endorsement of a security by Russell and Russell makes no representation, warranty or guarantee with respect to the performance of any security included in a Russell Index. 

Past performance does not guarantee future performance. This material is not an offer, solicitation or recommendation to purchase any security. Returns cited are US dollar-denominated.

Opinions expressed by Mr. Wood reflect market performance and observations as of September 16, 2013 and are subject to change at any time based on market or other conditions without notice. 

Nothing contained in this material is intended to constitute legal, tax, securities or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax and investment advice from a licensed professional. The information, analysis and opinions expressed herein are for general information only and are not intended to provide specific advice or recommendations for any individual entity.

Russell Investment Group is a Washington, USA corporation, which operates through subsidiaries worldwide, including Russell Investments, and is a subsidiary of The Northwestern Mutual Life Insurance Company.