When the S&P 500 (SPY) returns around 30%, there are not a lot of losers. In this article, I want to highlight the worst performing decile of the S&P 500. Notably, not even 50 companies generated negative total returns on the year. Like with this article's companion piece on the 50 Best Performing S&P 500 Stocks of 2019, I think it is instructive to look at the tails of the return distribution to understand the drivers of the best and worst performers of the last year as wee look forward towards 2020.
In the table below, I have listed the 50 worst performing current S&P 500 constituents.
Here are some of my takeaways from this list of laggards:
- Brick-and-mortar retail was unsurprisingly well represented on this list of underperformers. Macy's (M), Gap (GPS), L Brands (LB), and Kohl's (KSS) were all within the dozen worst performers on the year.
- While there were a number of traditional retailers on the list, it was Energy (XLE) that was the most well represented among the laggards. Ten of the 50 companies on this laggards list were in the Energy sector, with a heavy emphasis on Oil Field Service companies and drillers and independent exploration and production companies. West Texas Intermediate actually finished the year higher than it started after the 4Q18 swoon for commodities and risky assets, but WTI sold for about $8 less per barrel on average over the course of the year versus the year prior. In Sector Returns For The Decade, I noted that Energy was by far the worst performer on the decade, earning investors annualized total returns of just 3.3%. As seen in the table below, the sector was once again heavily represented among the market laggards.
- While it was far from an annus horribilis for Healthcare stocks, the sector was the most represented on the Laggards list by market capitalization. This distinction was largely driven by the presence of Pfizer (PFE) at #24. At twice the market capitalization of any other laggard, Pfizer skews this cap-weighting, but it is also notable that there were no Healthcare stocks within the Top 50 Performers as well. Healthcare prices feel like they are approaching a societal upper bound, which may hurt the ability for the sector to offer market-beating performance in the years ahead.
- I found it interesting that all 11 market sectors were represented by at least one company on the laggards list. Energy and Retail were over-represented, but there were a number of varying paths towards bottom decile performance in what was overall a very good year overall for the market.
- At around 16x trailing earnings, the Laggards trade at a lower average multiple than the market. The Leaders list, which was dominated by high-flying tech stocks, trade at a multiple more than twice as high. This multiple differential for the two tails of the distribution once again highlights the market's preference for Growth over Value in 2019.
- As I noted in a recent version of Dividend Aristocrat Performance, only 3 of the 57 Dividend Aristocrats posted negative total returns on the year. Each of those companies - Walgreens Boots Alliance (WBA), Franklin Resources (BEN), and 3M (MMM) are on the overall laggards list. They might be an interesting trio to follow in 2020 for dividend growth investors.
In what was the best year for the S&P 500 since 2013, the tail of the distribution was not so painful for investors. Not even 50 of the S&P 500 companies lost investors money on the year. Energy and Retail were over-represented on the list, but the overall list of laggards was fairly broad-based. I hope this depiction of the tail of the return distribution was useful in framing the themes that hurt investors in 2019.