MarketGrader Indexes – 2023 Performance Review

MarketGrader’s stock selection methodology shone in 2023, as 75% of our indexes outperformed their benchmarks in what turned out to be a strong year for most equity markets around the world. This report tracks the performance of 64 MarketGrader Indexes, which includes our new family of model portfolios, launched in 2023. Geographically, our Index family includes 34 US Indexes, 22 Developed Markets (ex-US) Indexes and eight Emerging Markets Indexes. All returns referenced in this article are total returns, calculated in USD (unless otherwise indicated).

Download our 2023 Global Indexes Report Card here.

Some of the year’s highlights:

  • Only three of our indexes posted a negative return for the year, two of which track Chinese equities, which have been in a prolonged bear market since mid-2021. Both, however, beat their benchmarks handily by more than 650 basis points (6.5 percentage points), on average. The only other MarketGrader Index with a negative return for the year was the market cap-weighted version of our US Consumer Staples Index, which lost 0.3% in 2023.
  • On an absolute basis (not relative to their benchmark), nine of our top 10 performers for the year were US Indexes, with the market cap-weighted version of our US Technology Index leading the way with a total return of 54.3%. Notably, the only non-US Index in our top 10 was the MarketGrader India All-Cap Growth Leaders Index, which posted a remarkable return of 39.9%.
  • The market cap-weighted version of the Barron’s 400 Index (Bloomberg: B400X) had a stellar year, posting a total return of 31.2%, 491 bps (basis points) ahead of the S&P 500 Index. Its equally weighted counterpart (Bloomberg: B400) also had a solid year with a 18.8% total return, 162 bps ahead of its benchmark, the Russell Mid Cap Index.
  • On a relative basis, 48 MarketGrader Indexes (or 75%) outpaced their benchmarks. Their average return for the year was 20.2%, and their average excess return over and above their respective benchmark was 791 bps. And while 16 of our indexes failed to beat their bogey, they nevertheless clocked an average total return for the year of 18.2%; their average underperformance was -542 bps. Figure 1 shows the average excess returns of the MarketGrader Indexes in 2023, as well as the excess returns on an annualized basis for the last three, five and 10 years.
  • Ironically, our top three underperformers on a relative basis were among our best performers on an absolute basis, in no small part because of the remarkable returns posted by large cap growth stocks in the US last year, particularly in the technology sector. The largest underperformance among MarketGrader’s Indexes was posted by the equally weighted version of our US Technology Index, which despite earning a 38.1% return for the year, trailed its benchmark, the S&P 1500 Information Technology Index, by 1846 basis points. Our MarketGrader US Large Cap Growth Index trailed its benchmark, the Russell 1000 Growth Index, by 1180 bps, despite gaining 30.9% for the year; and the market cap-weighted version of our US Consumer Discretionary Index trailed its benchmark by 1147 bps, despite a total return for the year of 29.1%.

Figure 1. Average Excess Returns (in basis points) for the MarketGrader Indexes by Geographical Category in 2023 and Based on Three, Five and 10-Year Annualized Returns

All figures on the chart are in basis points and are based on total returns for the MarketGrader Indexes relative to their individual benchmarks. Sources: MarketGrader, FactSet.

US Indexes – Overview

Among MarketGrader’s 34 US Indexes, only the market cap-weighted version of our US Consumer Staples Index posted a negative return in 2023, ending the year down 0.3%. Its equally weighted counterpart, however, gained 4.0%, outpacing the S&P 1500 Consumer Staples Index by 266 bps. From a relative performance perspective, though, eight of our US Indexes trailed their benchmark, with the worst three highlighted above.

Within our US Sectors, two indexes are worth highlighting: Energy and Industrials. Both outperformed their benchmarks by more than 1000 basis points, irrespective of weighting scheme (we calculate equally weighted and market cap-weighted versions of our US Sector Indexes). The MarketGrader US Energy Index (MCW) gained 16.9%, trouncing the S&P 1500 Energy Index’s return of -0.6%, a difference of 1757 bps. Meanwhile, our US Industrials Index (MCW) returned 31.4%, 1100 bps better than the S&P 1500 Industrials Index.

Within our US Core category, our three core US Large Cap Indexes (MarketGrader US Large Cap Select, MarketGrader US Large Cap 100 and MarketGrader US Large Cap 200) outperformed the S&P 500 Index in 2023. All three are now ahead of the S&P 500’s annualized returns in the last three, five and 10 years. Our US Small and Mid Cap Indexes also had outstanding 2023 returns, with the MarketGrader US Small Cap 100 Index (EW) shining brightest within this group. It delivered an excess return of 1182 bps over the S&P 600 Index, which we consider its benchmark. On a long-term basis, however, the leader in our small and mid-cap segment is the MarketGrader US Small & Mid Cap (SMID) 100 Index (EW). That index is leading its benchmark, also the S&P 600 Index, by 524 bps per year in the last decade.

In our US Style category, the over/under performance figures of our two large cap style indexes were identical reflections of each other in 2023. Our US Large Cap Growth Index, as highlighted above, trailed the Russell 1000 Growth Index by 1180 bps. On the other hand, the MarketGrader US Large Cap Value Index posted a remarkable return of 23.3%, besting the Russell 1000 Value Index’s 11.5% return by 1180 bps. It now leads its benchmark by 372, 493 and 387 bps in the last three, five and 10 years on an annualized, total return basis. Investors looking to diversify a core, market cap-weighted exposure that keeps leaning towards large cap growth should consider our US Large Cap Value Index.

Lastly, the two variants we calculate of our MarketGrader US Income 100 Index (yield-weighted and equally weighted) performed superbly in 2023. The yield-weighted version gained 24.3% and the equally weighted version gained 21.8%. These amount to 2273 bps and 2025 bps, respectively, in excess returns over and above the Dow Jones Select Dividend Index, which we consider their benchmark. Both are well ahead of the bogey in the last three, five and 10 years.

Developed Markets Indexes – Overview

Notably, none of our 22 Developed Markets (ex US) Indexes posted a negative absolute return in 2023, although five did fail to match or exceed their benchmark’s returns. Among these, the MarketGrader Israel Index (MCW) fell behind the MSCI Israel Index by 578 bps, although it had a positive total return of 5.9%. Its equal weighted counterpart did much better, gaining 10% for the year, although this was still not enough to match the performance of the MSCI bogey. Both versions of our Israel Index, however, are outpacing the benchmark handily across three, five and 10 years. The MarketGrader Israel Index (EW) is ahead of the MSCI Israel Index by 783, 1200 and 946 bps on an annualized basis across these three periods, respectively.

A standout country among our DM Index family last year was Japan, with our MarketGrader Japan Small Cap 200 Index posting a 24.4% return, 1063 bps ahead of the 13.8% return of the MSCI Japan Small Cap Index. Our Japan Large Cap Index also outperformed its benchmark, but only by 129 bps (22.1% vs. 20.8%). It nevertheless leads MSCI Japan by healthy margins across three, five and 10 years.

Our Europe and UK Indexes turned in outstanding performances too, with excess returns for the year in the 600 to 1000 basis point range. Notable among them was the MarketGrader UK 100 Small Cap Index (EW), which outpaced the FTSE 250 Index by 1022 bps (in GBP). Its large cap sibling, the MarketGrader UK 50 Index, outperformed the FTSE 100 Index by 848 and 1015 bps across its two weighting schemes (EW and MCW), respectively (both also in GBP). Our Europe Large and Small Cap Indexes outperformed their MSCI Europe Large and Small Cap benchmarks by 616 and 819 bps, respectively.

Within our small family of income-oriented Developed Market Indexes, the returns in 2023 were mixed. Our three Developed Markets (ex US) Income Indexes trailed their benchmark, the MSCI World ex US High Dividend Index, by an average of 359 bps; our two core Developed Markets ex US Indexes, however, maintain healthy excess return advantages over their benchmark on an annualized basis across three, five and 10 years. On the other hand, our two Australia Income Indexes beat the MSCI Australia Select High Dividend Index, by 744 bps, on average. Both also maintain comfortable advantages on an annualized basis across three, five and 10 years.

Emerging Markets – Overview

 As mentioned above, two of the three MarketGrader Indexes that posted a negative return last year track Chinese equities; however, they were not among the worst relative performers in our Emerging Markets category, since both beat their benchmark handily. More specifically, The MarketGrader China New Economy Index lost 2.5% in 2023, 902 bps ahead of the CSI 300 Index’s -10.9% return. And the MarketGrader New China ESG Index lost 6.9% for the year, 401 bps ahead of CSI 300. Both indexes are well ahead of the benchmark in the last three, five and 10 years on an annualized basis. However, we consider these to be “thematic” indexes, since, by design, they only select their constituents from among the sectors we refer to as “new economy” sectors: consumer discretionary, consumer staples, health care, and technology.

China’s ongoing bear market also hit our broad Emerging Markets Indexes, both of which have significant weights allocated to the country’s stocks. Despite posting positive returns of 7.8% and 8.9%, respectively, our Emerging Markets 200 and Emerging Markets 100 Indexes trailed the benchmark, MSCI Emerging Markets Index, by 243 and 138 bps respectively. They both lead the benchmark, however, by large margins across three, five and 10 years. In the context of China’s ongoing underperformance, it’s worth pointing out that the MarketGrader Emerging Markets (ex-China) 100 Index had a remarkable return of 25.7% in 2023, 510 bps ahead of its benchmark, the MSCI Emerging Markets ex China Index. Our ex-China EM Index leads that benchmark by 1736 bps, 993 bps, and 684 bps in the last three, five and 10 years, respectively. The three best performing MarketGrader Indexes on a relative basis in the last three years were our broad emerging markets indexes, including the ex-China version. This can be seen in Figure 2, which shows the 10 best MarketGrader Indexes relative to their benchmarks on a three-year basis.

Figure 2. Top 10 MarketGrader Indexes Based on Excess Return In the Last Three Years

MarketGrader IndexStrategy3-Yr. Rt.3-Yr. ER
The MarketGrader Emerging Markets (ex-China) 100 IndexEmerging Markets (ex-China)20.0%1736
The MarketGrader Emerging Markets 200 Index (EW)Emerging Markets Core12.4%1712
The MarketGrader Emerging Markets 100 Index (EW)Emerging Markets Core11.6%1631
The MarketGrader US Energy Index (MCW)US Sector49.4%1325
The MarketGrader US Consumer Discretionary EW IndexUS Sector16.3%1211
The MarketGrader Emerging Markets 100 Index (MCW)Emerging Markets Core6.9%1162
The MarketGrader US Energy EW IndexUS Sector47.4%1121
The MarketGrader US Income 100 Index – Yield WeightedUS Income – Core21.9%1070
The MarketGrader Japan 100 IndexJapan Large Cap Core11.2%1014
The MarketGrader US Cons. Discretionary Index (MCW)US Sector12.7%845
All returns are total returns, through Dec. 29, 2023. Excess Returns (ER) in basis points. Sources: MarketGrader, FactSet.

Last year’s standout among our Emerging Markets family was the MarketGrader India All-Cap Growth Leaders Index, which posted a remarkable gain of 39.9%, ahead of the MSCI India Index by a whopping 1859 bps. It leads the benchmark on an annualized basis in the last three and 10 years, but not in the last five. Our India large cap Index, the MarketGrader India 50, also had a strong 2023, gaining 22.4%. It leads MSCI India in the last decade, but not in the last three and five years, where it trails by a small margin.

Investors who wish to track the daily performance of the MarketGrader Indexes and stay abreast of new index announcements and launches should visit the Indexes section of our website here.

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