Large-capitalization growth equity managers posted the winning performance numbers during the second quarter, with many of their small-cap brethren hovering near the bottom of the rankings, according to the latest Pensions & Investments' Performance Evaluation Report.
U.S. equity indexes overall posted much lower returns in the second quarter when compared to the first. For instance, the Standard & Poor's 500 stock index's return in the quarter was 3.3%; the year-to-date return is 17.7%. The Russell 2000 small-cap stock index returned -4.7 in the second quarter; the year-to-date return is 4.9%.
Topping the second quarter's PIPER equity performance chart for managed accounts was Janus Capital Corp. of Denver, with a 14% return for its aggressive growth strategy. The same strategy posted a one-year return of 54.4%, ranking it sixth in that period.
The median return in overall managed equity for the quarter was -0.4%, and for the year, 11.4%.
Computer stocks were instrumental in boosting performance of the fund, as well as pharmaceutical companies, said Scott Schoelzel, portfolio manager for the $300 million Janus portfolio.
The large-cap growth portfolio is concentrated, with 25 to 30 stocks in about five sectors, Mr. Schoelzel said. Some of the winning second-quarter performers include Veritas Software, Dell Computer Corp., Microsoft Corp., America Online Inc., Cisco Systems Inc., Warner-Lambert Co., Pfizer Inc. and General Electric Co.
"We had very good balance in the portfolio. While it's concentrated, it wasn't overly invested in any one sector. Our team of analysts were very instrumental in the success," Mr. Schoelzel said.
The portfolio continues to hold some financial services companies, such as BankAmerica Corp. and Morgan Stanley Dean Witter & Co.
Mt. Auburn Management garnered a second-place ranking of 13.7% in the quarter, investing in a concentrated portfolio of technology stocks. That portfolio was also No. 1 for the 12 months ended June 30, returning 87.5%, head-and-shoulders above No. 2 Ashland Management Inc. with 68.3%. The S&P 500 returned 30.2% for the year.
Alan Dworsky, the principal asset manager of Boston-based Mt. Auburn, held in his concentrated large-cap portfolio nine positions in what he calls "information age" companies. Mr. Dworsky manages about $731 million in institutional tax-exempt assets in this style.
His holdings included America Online, Dell Computer, Cendant Corp. and BMC Software Inc.
"AOL has strong results, which includes growth in earnings, but particularly growth in membership and the strength of the business in a broad sense," Mr. Dworsky said. "Internet space was a hot area, and this is the leading Internet company."
Dell, which was up 37% for the quarter, is gaining fantastic market share, he said.
"Dell's earnings continue to surprise everyone on the upside. It's the quintessential business model for the Internet age," he said. BMC was no portfolio slouch, either, up 24% for the quarter, Mr. Dworsky noted.
"Holding nine positions provides the potential for outperformances. While I do have losers, dullards and laggards, I'm bound to have my share of winners. The percentage of overperforming has been high," he said.
Mt. Auburn's portfolio also did well in the long term. The portfolio ranked fifth for the three-year period, with a compound annualized 40.5% return; second for five years, with 35.1%; and first for 10 years, with 36.7%. (All returns for periods of more than one year are annualized.)
Marvin & Palmer Associates of Wilmington, Del., had a 9.6% return on its $40 million large-cap U.S. equities portfolio, placing seventh in managed accounts for the quarter. (A Marvin & Palmer commingled fund, managed in the same strategy, placed first among overall equity managers in that universe, with a 9.6% return for the quarter.)
The team concentrated on three sectors: financial services, retail and technology/telecommunications.
"We did well with financials until they came under pressure about mid-June," said David Marvin, co-founder and chairman of Marvin & Palmer, and a manager for the strategy. "They had had a huge run, but started to act poorly. We've been big in financial for three years, but they reached the peak."
Marvin & Palmer holdings included State Street Corp., American International Group Inc., Citicorp, Travelers Group and Merrill Lynch & Co. Inc.
"When they came under pressure, we moved out and moved into pharmaceuticals," he said. The financial sector posted a total return of -15.8% during the second quarter, and -11.9% year-to-date, according to the Dow Jones Global Indexes.
The retail sector also served Marvin & Palmer well during the second quarter.
"Most retailers have benefited from the deflation going on in the world. The price dropping on imported items expands their margins," Mr. Marvin said. His team invested in The Gap Inc., Dayton Hudson Corp., Wal-Mart Stores Inc. and The Home Depot Inc.
AOL, which was up 54% for the quarter, did very well for the team, as did Cisco Systems, he said. Telecommunications stocks in the portfolio include Time Warner Inc. and Comcast Corp., which were strong for the quarter.
The technology sector was up 6.4% in the second quarter, according to Dow Jones, and 25.9% year to date. Despite the overall strength of the sector, technology stocks are a mixed bag through which you have to sort carefully, Mr. Marvin added, "especially Internet-related stocks."
The three-year median for managed accounts was 26.8%, according to PIPER data. And the S&P 500 returned 30.2%. The leader for the three-year period in managed accounts was Oppenheimer Capital, New York, with a 47.7% return for its concentrated value equity strategy.
Sorema Asset Management, New York, posted the top five-year result for managed equity accounts, 37.6%, with its growth equity strategy. This compares with the median for five years of 21.1%, and the S&P 500's 23.1%.
Among commingled managers, Bessemer Trust Co., New York, followed Marvin & Palmer in overall equity for the second quarter with an 8.8% return for its core U.S. equities fund. The commingled median return was 0.2% in the quarter. The large-cap portfolio is tuned to earnings growth; the benchmark is the S&P 500.
"We don't buy companies where the price of the product is declining," said John Chadwick, executive vice president and portfolio manager. That means no utility holdings, and no petroleum or paper companies, he said.
During the second quarter, the $600 million portfolio held plenty of technology-related firms: Tellabs Inc., Cisco Systems, EMC Corp. and Microsoft.
At the end of 1997, Bessemer's managers concluded companies like Motorola Inc. and Intel Corp. would be injured by their extensions into the Far East, so those stocks were sold.
"We moved the proceeds on shore, into retail" by the second quarter, Mr. Chadwick said. "Nothing ever stops the consumer from spending, except maybe interest rates."
About 20% of the portfolio in the second quarter held stocks like Home Depot, Costco Companies Inc., Walgreen Co., Kohl's Corp. and CVS Corp. Health care made up about 15% of the portfolio, and those stocks did well also, Mr. Chadwick said.
The Bessemer portfolio also held about 10% in bank stocks such as Merrill Lynch, BankAmerica Corp., Chase Manhattan Corp. and Citicorp, until the end of June. About that time, concerns about currency valuation worldwide might have caused the pressure on the stocks, Mr. Chadwick said. The portfolio now only has 5% bank stocks.
Columbus Circle Investors, Stamford, Conn., ranked third in overall commingled equity -- and first among growth commingled equity -- for the quarter, with 8.3%. Columbus also was fourth for one-year, with 43.3%, while the one-year median was 24.8%
Portfolio manager Tony Rizza said the portfolio benefited from its holding of AOL, which Columbus has held for several years. Another winning stock for Columbus was Capital One Financial Corp., which was up 57% for the quarter.
Warner-Lambert also helped the portfolio, with a 23% increase in the quarter, Mr. Rizza said.
Like Bessemer Trust, Columbus worried about companies like Motorola, which was vulnerable to the cyclical changes in relation to Asian economic problems. Columbus sold Motorola, Federal Express Corp. and Georgia-Pacific Corp. and put the money into Tele-Communications Inc., the Denver-based cable TV company, and the U.S. retail market.
Columbus' holdings in Home Depot, Costco and The TJX Cos. were beneficial in the second quarter, Mr. Rizza said. The portfolio is managed according to a longtime strict discipline, based on fundamental surprise, he said.
GEM Capital Management, New York, placed first in one-year results with 49.5% for its special equity fund. It also was top for the 10-year period, with an annualized 34.1%. The medians were 24.8% for one year and 17.6% for 10 years.
Associated Bank NA, Green Bay, Wis., recorded the top three-year number with a return of 40.3% for its regional bank fund. This compares with the median for three years of 26.3%
Transamerica Investment Services, Los Angeles, posted 32.9% for five years, the highest for that period among commingled managers. The median was 20.9%.