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(Bloomberg) — Going against the crowd is becoming a rewarding strategy for U.S. stock investors after a period of poor performance, according to Thomas J. Lee, managing partner and head of research at Fundstrat Global Advisors LLC. As the attached chart illustrates, the Dow Jones U.S. Contrarian Opportunities Index rose more in the first quarter than an equally weighted version of the Standard & Poor’s 500 Index. The Dow indicator, consisting of 125 stocks with equal weights, trailed in 12 of the previous 15 quarters. The stage has been set “for contrarian-style investments to sustain outperformance,” Lee wrote in an April 2 report that had a similar chart. The New York-based strategist cited three reasons why the reversal will last: — Increased dispersion, or variation in the returns for individual stocks. Monthly dispersion for the shares of S&P 500 companies dropped in August to the lowest level since 1979, data compiled by JPMorgan Chase & Co. and Bloomberg show.

— More obvious second-half gains for companies aided by lower oil prices. Crude oil’s average price last quarter in New York trading declined 51 percent from the first three months of last year, to $48.57 a barrel.

— A “potential breakout” in U.S. housing and another in capital spending. February housing starts were 60 percent lower than the record set in January 2006, according to data compiled by the Commerce Department. Capital outlays slumped this year amid cuts at energy producers.
Stocks in the Dow index have trailed the market while surpassing peers on earnings, revenue and other criteria. They are selected from the Dow Jones U.S. Broad Stock Market Index, which has shares of about 2,500 companies.

To contact the reporter on this story: David Wilson in New York at dwilson@bloomberg.net To contact the editors responsible for this story: Chris Nagi at chrisnagi@bloomberg.net Jeremy Herron, Jeff Sutherland