S&P 500 Sector Reversal Pattern

Chart of the Week for September 29–October 5, 2006

Past performance does not guarantee future results.

As we approach the end of the third quarter, it’s interesting to look at a historical pattern for the sectors of the S&P 500 index. Every year since 1990, the worst performing sector in the first three quarters of each year has reversed to have a positive return in the last quarter, with an average quarter move of 11%. In addition, relative to the S&P 500 index, the sector lagging in Q1 – Q3 outperformed 11 out of the last 16 years in the fourth quarter, with an average of 5%. For example, the Information Technology sector dropped 45% in the first three quarters of 2001, but the sector surprisingly generated a return of 35% and outperformed S&P 500 Index by 24% in the fourth quarter of 2001.

This year, we found that the Information Technology is again lagging behind other sectors in the S&P 500 index as of September 26, 2006. Does this mean that investors should pour money into this sector and hope for a gain in the fourth quarter? No.

Investors must be cautious when the media reports patterns like this. Acting on them is very risky since history doesn't always repeat itself in the future, and variables can always change. A quarter’s gain might not be able to offset loss in the longer term. Keep a long term perspective and diversify your investment portfolio.

* This illustration was compiled by information from outside sources which are not affiliated with ICMA-RC. This information is being provided for educational purposes and is not intended to be construed as or relied upon as investment advice. The ICMA-RC does not offer specific tax or legal advice. Individuals are advised to consider any new investment strategies carefully prior to implementing. Past performance does not guarantee future results. Investment returns and principal value will fluctuate, so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data illustrated. For performance data current to the most recent month end, contact ICMA-RC Services, LLC by calling 1-800-669-7400 or by writing to 777 North Capitol Street, NE, Washington, DC 20002-4240, or by visiting www.icmarc.org. Please consult both the current Vantagepoint Funds prospectus and MAKING SOUND INVESTMENT DECISIONS: A Retirement Investment Guide carefully for a complete summary of all fees, expenses, charges, financial highlights and investment objectives, risks and performance information prior to investing any money. Vantagepoint securities are distributed by ICMA-RC Services LLC, a broker dealer affiliate of ICMA-RC, member NASD/SIPC. For a current prospectus, contact ICMA-RC Services LLC, 777 North Capitol Street NE, Washington, DC 20002-4240. 1-800-669-7400. AC:0906-1012.