TACOMA, Wash. -- For the first time in six years, U.S. small-capitalization stock returns finally outperformed their large-cap brethren in 1999.
Measured by the return of the Russell 2000 index, domestic small-cap stocks returned 21.3% last year, topping both major large-cap indexes -- the Standard & Poor's 500 at 21% and the Russell 1000 at 20.9%, according to year-end data from Frank Russell Co., Tacoma.
The pack-beating returns of the Russell 2000 were due to a surge in small-cap stocks in the last quarter and particularly in the last weeks of December, as investors took their appetite for technology stocks way down into the realm of smaller companies, said Russell analysts. The technology sector became the heaviest weighted sector within the Russell 2000 for the first time ever during the fourth quarter, comprising 23.6% of the index, compared with financial services, 17.5%, and consumer discretionary services, 16.8%. The technology sector of the Russell 2000 had a 14.8% weighting in June.
While topped by small-cap and midcap stocks, larger-cap growth stocks continued to reward investors in 1999. The Russell 1000 Growth index returned 33.2% for the year and 25.1% in the fourth quarter. But the returns of these larger companies were handily surpassed by those in the Russell Midcap Growth index, which returned a hefty 51.3% in 1999 and 39.5% in the fourth quarter.
The behemoths of the U.S. stock market, included within the Russell Top 200 index, returned a respectable 21.8%, but they were beaten handily by the truly enormous companies in the Dow Jones Global Titans index, which tracks the world's 50 largest, most liquid multinational companies. That index returned 25.3% for the year, led by Deutsche Telecom AG with a return of 154.6%, Siemens AG with 130.7% and Morgan Stanley Dean Witter & Co. with 101.7%.
Looking at the broader market through the returns of the Russell 3000 index, analysts at Russell found that while the overall index returned 20.9% in 1999, it was mainly driven by the technology sector, which returned 78.2%. In contrast, three other major sectors in the 3000 index were negative: health care, -7.1%; consumer staples, -16.2%; and automobiles and transportation, -3.4%.