Managers Bullish on Large Caps After a Confounding Q1

NEW YORK (TheStreet) -- Woeful first-quarter performance from Best Buy  (BBY) and Staples  (SPLS) encapsulate a key theme of the market this year: Investors are dumping stocks priced to perfection when business performance gets shaky and shunning sectors, such as consumer discretionary, perceived as overvalued.

This was meant to be the year stocks traded on fundamentals and less on macroeconomic policy moves, given the wind-back of stimulus from the Federal Reserve. Instead, a resurgence of risk aversion on emerging market debt woes, the Ukraine crisis and Chinese growth concerns has rattled markets.

The first quarter saw gold soar on its safe-haven status, notching 6.66% to outperform the S&P's 1.39% return. Fears around lower-than-expected growth for China -- the world's largest commodity consumer -- triggered a nosedive in the price of iron ore, copper and other key commodities.

In the same vein, conservative utilities were the best performing equity sector, up 8.95%. Utilities are effectively a bond proxy and their popularity illustrates risk aversion and reaction to a backdrop where rates will not rise as fast as anticipated.

As concern grows around valuations, investors have dropped last year's best performing sectors: consumer discretionary posted 37.7% in 2013 but has shed nearly 3% this year. Media jumped 43.6% last year but slid 1.7% in the first quarter. Unsexy utilities inched up just 6.82% in 2013 but have upstaged IT stocks and other high profile sectors so far this year.

"This shift suggests glamorous, high-momentum types of stocks are less in vogue [and] speaks to the fact the market appears to be experiencing a rotation away from growth and into value styles," BlackRock global chief investment strategist Russ Koesterich told clients Monday.

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