By Rodric E. Cummins, CFA, Senior Vice President and Chief Investment Officer

U.S. equities experienced the best first quarter return in over a decade, as the S&P 500® Index registered a first quarter return of 5.92%, bringing the one-year trailing return to 15.65%. The broader U.S. market, as measured by the Russell 3000® Index, gained 6.38% for the quarter and 17.41% for the one-year trailing period.

From a sector perspective, performance was once again unanimously in positive territory as all sectors within the Russell 3000® Index advanced during the first quarter. The energy sector was by far the best performer as supply fears surrounding some of the Middle Eastern producers drove oil prices higher during the period. The weakest performers were the financial services, consumer staples and technology sectors which still posted solid single-digit gains during the quarter.

In terms of equity market capitalization and style, everything (small, mid, large; growth, core, value) advanced during the first quarter of 2011. Small- and mid-cap companies outperformed their large-cap counterparts as the Russell 2000® Index posted a first quarter return of 7.94%, the Russell Midcap® Index posted a return of 7.63%, and the Russell 1000® Index advanced 6.24%. Growth-oriented stocks outpaced value-oriented stocks across the small- and mid-capitalization segments, while value outperformed growth in the large-capitalization segment of the market. The Russell 1000® Value Index and Russell 1000® Growth Index had quarterly returns of 6.46% and 6.03%, respectively. Stocks with higher P/E ratios, higher beta, lower market capitalization and lower quality characteristics generally outperformed during the first quarter.

International equity markets declined in March but staged an impressive rally into the end of the month and finished the quarter in positive territory. The MSCI-EAFE Index (Net), a measure of international developed country returns, generated a first quarter return of 3.36%, bringing the one-year trailing return to 10.42%. Emerging markets equities underperformed their developed counterparts during the period but continued to advance as the MSCI Emerging Market Index returned 2.05% for the quarter and 18.46% for the one-year trailing period.

Most of the regions within the MSCI® All Country World ex-U.S. Index (representing both developed and emerging international markets) ended the period in positive territory. The best performing markets were primarily in Europe and included Hungary, Russia and the Czech Republic. Negative performing markets included Egypt, Peru and Chile. Japan also suffered during the quarter as investors attempted to assess the impact from the developing nuclear disaster. From a sector perspective, energy comfortably outperformed all sectors as it benefited from demand growth and tensions in the Middle East. The weakest performers were the information technology and consumer discretionary sectors which both posted moderately negative returns.

All indices are unmanaged and not available for direct investment. Index performance assumes no taxes, transaction costs, fees or expenses. This update is prepared for general information only and it is not to be reproduced.