Money managers used a variety of investment styles in posting leading returns for the 20-year period ended Dec. 31, according to the Pensions & Investments Performance Evaluation Report.
Managers worked in an environment in which both stocks and bonds were posting strong returns: the Standard & Poor's 500 Stock Index returned 14.6% and long-term U.S. government bonds returned 9.5%, according to Ibbotson Associates, Chicago. All multiyear returns are compound annualized.
Among separate account equity composites, Richard C. Blum & Associates, San Francisco, reported the highest return, 26.4%. Executives could not be reached for comment.
Beutel Goodman Capital Management Ltd., Houston, had the second-highest equity composite at 17.9%.
Robert McFarland, chairman and chief investment officer of Beutel, said the firm uses internally generated research, which includes meetings with the managements of companies.
Beutel managers look for some type of internal change that is going to boost the share price in the next few years. The changes would include new management, a restructuring, an acquisition or a major divestiture, he said.
A company Beutel likes is Intel Corp., he said. Intel is doing a lot of exciting things that are likely to keep its earnings prospects strong, he said.
Peregrine Capital Management Inc., Minneapolis, ranked third with 20.8% for its small-cap composite, followed by Fred Alger Management Inc., New York, with 19.6% in its all-cap growth composite, and Trust Co. of the West, Los Angeles, with 19.1% in its concentrated core composite.
Doug Foreman, chief investment office of domestic equities at TCW, said they use a combinatin of top-down and bottom up analysis to arrive at concentrated portfolios of 35 to 45 stocks.
Loomis, Sayles & Co., Boston, reported the highest fixed-income managed account composite - 11.9% for its medium-grade composite.
Kathleen Gaffney, vice president and portfolio manager for Loomis, said the strategy has worked well over the years because of its flexibility, which allowed the firm to move in and out of securities such as high-yield bonds and convertibles as appropriate. The strategy also allowed investments outside of the United States, which contributed to some strong near-term returns.
Miller Anderson & Sherrerd, West Conshohocken, Pa., ranked second for the 20- year period with 11.2% for its fixed-income composite.
Tom Bennett, a managing director for MAS, has worked on the account since 1984. He said three main forces are behind the numbers: Miller Anderson's team approach, its value orientation and its early emphasis on mortgage-backed securities.
When the mortgage-backed market was just getting started, investors weren't valuing them properly, creating an opportunity for MAS to buy the securities at relatively cheaper prices, he said.
In recent years, the firm also added non-dollar securities to selected portfolios. The current allocation is 55% mortgage-backeds, 23% U.S. Treasuries, 20% corporates and 2% non-dollar bonds.
Pacific Investment Management Co., Newport Beach, Calif., ranked third among PIPER separate account fixed-income managers with 11.2%.
William Gross, a managing director who has worked on PIMCO accounts since 1971, said three main factors contributed to PIMCO's return.
One factor was PIMCO's ability to pick the beginning of a major bull market in bonds in 1981, which began a secular change in the direction of interest rates, he said.
Concurrently, PIMCO was an early user of financial futures, which at their inception in 1982 "were absurdly cheap." There wasn't a lot of demand for fixed-income futures on the buy side, creating opportunities for long investors like PIMCO, he said.
PIMCO's move into international bonds in 1987 also contributed to its outperformance, he said.
Looking ahead, PIMCO's portfolio durations are slightly longer than the market. Managers are looking for lower rates, but not significantly so, he said. "I think it's the year of the yield," Mr. Gross said.
Standish, Ayer & Wood Inc., Boston, ranked fourth in the 20-year period with 10.9%.
Lori S. Driscoll, a managing director who worked on the accounts in the composite for more than 23 years, said the firm's willingness to look at new sectors contributed to its strong performance.
"We like to research innovations early," Ms. Driscoll said. The basic strategy is to over- or underweight market sectors based on anticipated relative value, she said.
Although international securities can be used in some accounts, they don't account for a big chunk of the portfolio's performance, she said.
Lowe Brockenbrough & Tattersall Inc., Richmond, Va., ranked fifth among PIPER fixed-income managers with 10.9%.
Fred Tattersall, managing director, said the firm is a core style manager, that rotates in and out of sectors as it deems necessary. In addition, managers do some market timing, with about 25% of their returns coming from that, he said.
On the commingled fund side, where PIPER's origins are, Bankers Trust Co., New York, reported the best performing equity fund, with 19.4% for its Pyramid Capital Appreciation fund.
Anthony Takazawa, vice president and one of the team portfolio managers for the fund, said it uses themes and an aggressive growth strategy. The fund typically holds 80 to 100 stocks.
In addition, managers follow a strict sell discipline based on market valuations and relative underperformance that contributes to the fund's annual portfolio turnover of 100% to 150%, he said.
"The sell discipline works as a risk control measure," Mr. Takazawa said.
Alliance Capital Management L.P., New York, ranked second with its midcap growth fund, which returned 17.9%.
The U.S. National Bank, Galveston, Texas, was third with 17.5% for its value equity style.
Harris "Shrub" Kempner Jr., who has worked on the fund since 1969, said the bank uses an absolute value strategy, which has resulted in rising cash reserves in recent months.
"They have to be absolutely cheap by our standards," Mr. Kempner said.
Currently, "we can't find stocks that have limited downside risk, no matter what the market does," he said.
As contrarians, fund managers profited in the 1980s from negative sentiment in the oil sector. More recently, they bought Ford Motor Co. based on a recent share price that valued the auto portion of the company at practically zero, he said.
Like Beutel Goodman, Chancellor LGT Asset Management, New York, uses fundamental research to seek impending change at companies.
Chancellor LGT's value fund ranked fourth among commingled funds with 17.4%. Ted Ujazdowski, managing director for Chancellor LGT, said the firm is willing to hold a stock until the identified trend plays out.
He said that as a value investor, it's harder for the firm to find stocks in the current market, but "as long as there is change at companies, we're still able to find (companies) to invest in." Mr. Ujazdowski has been working on the fund for about 10 years.
ANB Investment Management & Trust Co., Chicago, ranked fifth with a 20-year return of 17.1% for its diversified equity fund.
Janna Sampson, senior portfolio manager for ANB who started working on the fund in the mid-1980s, said it is designed to be a core type of equity holding and should outperform in down markets.
The investment style is based on basic investment themes its managers have identified. The current themes are market power, in which ANB tries to find companies with some type of market power or market leadership; small-capitalization stock, trying to buy small-cap companies that will outperform; buyback, researching companies that have announced buybacks of their stock; and the "winner's curse."
The winner's curse theme, also called the quantitative theme, tries to avoid stocks that have wider bid/ask spreads and higher trading volume, which together indicate investors are too eager to own the stock.
Ms. Sampson said that particular theme worked well in the market. "It's pretty easy to find overvalued stocks in this market, unfortunately," she said.
For commingled fixed-income funds, the 20-year leader was Beverly Trust Co., Oak Lawn, Ill., which returned 11.8%.
Ronald Stajkowski, president, said Beverly uses a contrarian approach. For example, airline company issues were beaten down in 1991 and 1992 when earnings prospects were dim. He loaded up on some issues with 10.2% and 10.25% coupons that are non-callable until 2021, he said.
Boatmen's Trust Co., St. Louis, ranked second among commingled fixed-income funds with 11.2% in its variable maturity fund.
Landers Carnal, chief investment officer and executive vice president, termed its approach as "absolutely active duration and absolutely high quality."
He said Boatmen's managers will not hesitate to take strong positions on the direction of interest rates: "That clearly is what has set us apart as an active duration manager."
During recent strong bull markets in bonds, that strategy bolstered returns, he said. And to help keep the focus on duration management, Boatmen's managers keep portfolios in U.S. Treasury securities, although most mandates allow them to use other types, he said.
Sovran Capital Management Corp., Richmond, Va., ranked third with 10.8% in its pooled bond fund.
Patrick O'Hara, senior vice president and marketing manager, said Sovran uses an active duration style in the investment-grade bond market. Unlike Boatmen's, they don't make big bets. "We're not looking to hit a home run every year," he said.
In Westport, Conn., the Common Fund's pooled manager-of-managers fund ranked fourth with 10.4%. Mary Ellen Beaudreault, vice president, said strategies have evolved over time as the market evolves. The firm added global bond managers in 1985 and high-yield managers in 1989. Currently, the bond fund has five core fixed-income managers, three global managers, one high yield and 14 different private security managers, Ms. Beaudreault.
ASB Capital Management Inc., Washington, ranked fifth with 10.3% for its employee benefit bond fund.
Robert Wasilewski, managing director and director of fixed income, said the strategy involves managing duration, managing around the shape of the yield curve and managing sectors. He started working on the fund in 1986.
One of the unusual securities ASB has dabbled in over the years is corporate 100-year maturity issues, he said. Currently, the fund is overweighted in corporate securities, and its duration is about 112% of its benchmark, Mr. Wasilewski said.
PIPER data are compiled by RogersCasey, Darien, Conn.