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By Christine Benz and Shannon Zimmerman | 03-28-2013 12:00 PM

First Quarter in Funds: Big Winners and Performance Trends

Smaller was better, value outperformed growth, momentum offered a kicker, and Japan was on a tear in the first quarter, explains associate director of fund analysis Shannon Zimmerman.

Christine Benz: Hi, I'm Christine Benz for Morningstar.com.

U.S. stock market indexes notched very strong gains during the first quarter, and U.S. equity mutual funds did well, too. Joining me to recap some of the performance trends is Shannon Zimmerman. He is associate director of fund analysis with Morningstar.

Shannon, thank you so much for being here.

Shannon Zimmerman: Good to be with you, Christine.

Benz: Shannon, a very strong quarter for U.S. equity markets. Let's talk about some of the major indexes and how they performed.

Zimmerman: Sure. Well, all the major indices are up fairly substantially, by double-digits. The S&P 500 is up more than 10%; the smaller-cap indices, the S&P 400, which is a mid-cap index, and the Russell 2000, which is the standard small-cap index, are up even more, about 12% each. So, on the domestic side, it's been a pretty impressive run so far in 2013. Internationally, it's a little bit different.

Benz: OK. Coming into 2013, a lot of pundits might have said large-caps are the place to be, maybe foreign stocks are looking more attractive than U.S.; we really haven't seen those trends play out.

Zimmerman: No, exactly right. In fact, if anything we've seen the trends that were across most of 2012 continue to play out so far in 2013, and exactly right, managers and pundits have weighed in, and they did at the end of the year and have continued to this quarter amid this run-up, to say… international markets look undervalued relative to domestic, and inside the domestic space, the larger-cap names look more attractively valued than smaller. That's not the way investors have behaved, though, so far. If only on the margins, smaller-cap companies have fared better than the larger-cap companies.

Benz: When you drill into the U.S. equity fund categories year-to-date, what are the standout categories; it sounds like large-caps haven't performed as well?

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