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In a Strong Year for the MarketGrader Indexes, MG100 Led the Way

Carlos DiezCarlos Diez

Our family of MarketGrader indexes had a strong, across the board 2012, with nine out of 14 beating their benchmarks and all 14 improving on their excellent long-term performance. Ten of our indexes have now beaten their benchmark on a five-year annualized basis, while all 14 are ahead of their bogeys based on 10-year annualized results. This doesn’t include their cousin, the Barron’s 400 Index, which has also done remarkably well against its benchmark but will be addressed in a separate post.

Leading the way in 2012 was the MarketGrader 100 Index (NYSE: MGONE), which gained 18.6% compared to the S&P 500 Index’s 13.4%, both calculated as price-only returns (as are the rest of the performance figures discussed in this post). MG100 has now bested the S&P 500 by 2.5% per year in the last five years based on five-year annualized returns of 1.4% and -1.1% respectively. More impressively, it has outperformed its benchmark by 6.2% per year over the last decade. Our index has gained, annually during this period, on average, 11.0%, compared to 4.8% for the S&P 500. Cumulatively? MG100 is up 190.0% in ten years vs. 57.1% for the benchmark.

Among MG100’s top performing stocks in 2012 were Pharmacyclics (PCYC), up 290% in 2012; Patrick Industries (PATK), up 280%; Santarus (SNTS), up 232%; CVR Energy (CVI), up 160% and Homeowners Choice (HCO), up 160%. Some of its better known winners included eBay (EBAY), Lululemon Athletica (LULU), LeapFrog Enterprises (LF), Moody’s (MCO), Western Digital (WDC), (PCLN) and MasterCard (MA).

Laggards included Herbalife (HLF), down 36% in 2012; Questcor Pharmaceuticals (QCOR), down 36%; RPX Corp. (RPXC), down 29%; Superior Energy Services (SPN), down 27%; and Nu Skin Enterprises (NUS), down 24%.

The MarketGrader 100 Index will next be rebalanced on February 15th as part of its semi-annual reconstitution process.

Our other two ‘core’ indexes, MG40 (NYSE: MGFTY) and MG200 (NYSE: MGTWO), also had a solid year, gaining 11.5% and 16.3% respectively in 2012. Their 10-year annualized returns of 10.4% (MG40) and 10.0% (MG200) handily exceed the gains of the S&P 500, the Dow Jones Industrial Average and the Nasdaq Composite Index.

Among our Market Cap Indexes, ironically, our best historical performer, the MarketGrader Mid Cap 100 Index (NYSE: MGMID), was the only one that failed to top its benchmark in 2012. MGMID gained 14.9% in 2012 compared to 16.1% for the S&P 400 Mid Cap Index. Both indexes are now neck and neck in the last five years, each returning an average of 3.1% per year. However, over a ten year period, MGMID still holds a healthy advantage, up 11.2% annually to the benchmark’s 8.9%. Our small cap index, MG Small Cap 100 (NYSE: MGSML), beat the S&P 600 Index 15.8% to 14.8% last year. It now leads the benchmark 9.4% to 9.1% on a 10-year annualized basis. MG Large Cap 100 (NYSE: MGLRG) gained 14.4% in 2012, one point above the S&P 500’s 13.4%. Its 10-year annualized return is now 9.7% to the benchmark’s 4.8%.

Among our eight sector indexes, last year’s best performer was the MarketGrader Industrials Index, which climbed 16.7% compared to its benchmark, the Dow Jones U.S. Industrials Index, which gained 15.4%. Last year’s best performer, MG Health Care, was actually one of the few indexes that trailed its benchmark last year. It gained 13.7% while the Dow Jones U.S. Health Care Index rose 16.8%. This, however, hardly dented its long term outperformance; MG Health Care is now up 5.8% and 12.0% per year in the last five and 10 years respectively, handily outperforming its benchmark’s 3.4% and 5.6% five and ten-year annualized returns.

The biggest underperformer among our sector indexes in 2012, not surprisingly, was MG Financials, which gained “only” 12.7% compared to 23.9% for the Dow Jones U.S. Financials Index. Such underperformance can be attributed to the significant differences in the composition of both indexes as well as their weighting methodologies. MG Financials hasn’t owned, in many years, many of the large cap financial conglomerate banks, such as Bank of America (BAC) and Citigroup (C) that the benchmark counts among its largest holdings. In fact, Wells Fargo (WFC), JPMorgan Chase (JPM), Bank of America and Citigroup currently account for almost 22% of the Dow Jones U.S. Financials Index’s weight. In contrast to this, JPMorgan Chase is currently a member of MG Financials but it accounts for approximately 2.5% of the index, while Wells Fargo makes it into MG Financials sporadically and is not currently a member. Bank of America and Citigroup don’t have the fundamentals that would qualify them for index selection. These stocks were among the best performers in 2012, explaining the benchmark’s strong performance. They were also, of course, among the worst performing stocks during the financial crisis of 2008, which explains why the Dow Jones U.S. Financials Index fell 52% that year while MG Financials “only” fell 35%. This difference also explains why, on a five-year annualized basis MG Financials is down 0.6% per year while the benchmark has lost 8.5% per year. Currently the ten highest graded companies in MG Financials are Home Bancshares (HOMB), Homeowners Choice (HCI), Fidelity National Financial (FNF), Moody’s (MCO), T. Rowe Price (TROW), KKR & Co. (KKR), U.S. Bancorp (USB), MasterCard (MA), American Express (AXP) and Main Street Capital (MAIN).

The weakest absolute performance among all of our indexes was turned in by MG Energy, which is, not coincidentally, our best overall ten-year performer. The index barely eked out a gain in 2012, slightly below its benchmark’s 2.6% return. However, MG Energy is up 14.5% annually in the last decade compared to 11.8% for the Dow Jones U.S. Oil & Gas Index. On a cumulative basis MG Energy gained 296% in the last ten years compared to 204% for the benchmark. All of our sector indexes will go through their next quarterly rebalance on February 15th.

For more information and daily performance on the MarketGrader Indexes please visit the MG Indexes section of our web site here. Subscribers may click on each index’s ‘Components’ link for a complete list of all the stocks in each one. For licensing opportunities or to learn more about how to incorporate MarketGrader’s research and our indexes into your investment products please contact us at (305) 529-8551 or

Please click here for our complete 2012 MG Indexes Report Card. Happy investing in the New Year.

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