Growth stocks continued to prevail in the quarter ended March 31. But this time, it was small caps putting in the strongest performance, with large caps hardly in sight for the quarter, one-year and three-year rankings.
Value stocks continued to do poorly in the Pensions & Investments' Performance Evaluation Report, but even in that area there was some division. Large-capitalization value stocks turned in the most dismal performance, but some small-cap value managers turned in respectable numbers.
Among managed equity portfolios, George D. Bjurman & Associates, Los Angeles, had the top performance for the quarter, with a return of 39.15% for its emerging growth equity strategy. The Standard & Poor's 500 index returned 2.3% for the quarter; the Nasdaq returned 12.4%; the median PIPER return was 5.1%.
"We buy small-cap companies with very high earnings growth," said Thomas Barry III, chief investment officer at Bjurman. Portfolio managers stick to companies with a market capitalization in the $30 million to $300 million range.
"We've had good weightings in technology, health care, oil service and specialty retail," said Mr. Barry.
The biggest share of the portfolio, about 65%, was in technology stocks at the beginning of the quarter, but as the size and price of the companies went up, Mr. Barry sold them, reducing the portfolio to about 40% technology stocks at the end of the quarter.
Diodes Inc. and Elantec Semiconductor Inc. are two firms still in the portfolio.
While moving out of technology stocks, the portfolio managers moved into oil services companies, such as Comstock Resources Inc. and Key Production Co.
However, while ranking first for the quarter, Bjurman wasn't among the top performers in equities for the 12-month, three-year, five-year or 10-year period.
In fact, only four firms in the top 15 for the quarter were also among the top in any of the other periods.
Shaker Investments, Englewood, Colo., which came in second for the quarter with a 37.54% return for its small/midcap growth portfolio, also ranked 12th for the year, with a 166.87% return, and sixth for the five-year period ended March 31, with a 54.1% return. The S&P 500 returned 21% for the year ended March 31 and the Nasdaq, 85.6%. The median PIPER return for the year was 22.9%
Shaker CIO Edward Hemmelgarn said the semiconductor, biotech and business services sector had provided much of the portfolio's performance. Holdings include ATMI Inc., which makes materials for the semiconductor industry, RF Micro Devices Inc. and Microchip Technology Inc.
In the business services area, the portfolio includes Nova Corp., which processes credit card transactions for merchants.
"We buy stocks with lower p/e's," said Mr. Hemmelgarn, pointing to Royal Caribbean Cruises Ltd. as one holding selling at 10 times current earnings.
The microcap growth equity portfolio of Duncan Hurst Capital Management, San Diego, ranked sixth for the quarter, with a return of 34.42%, and first for the 12 months with a return of 229.42%. The firm's large-cap growth equity portfolio ranked 10th for the three-year period, with a 72.31% return, and its medium-cap growth portfolio ranked 14th for the three years, with 71.49%. The median PIPER return for the three-year period was 24.5%. (All returns for periods of more than one year are compound annualized figures.)
"We apply an aggressive growth strategy, relative price strength and earnings momentum" to the microcap portfolio, said Bob Marren, portfolio manager at Duncan Hurst.
The portfolio's biggest holdings are in technology, semiconductor, communications and Internet companies. It invests in companies with a market cap of less than $300 million. However, Mr. Marren said that "we will let our winners run up to the $1.5 billion range."
Companies with earnings
"In most cases, the companies have earnings," said Mr. Marren.
Exchange Applications Inc., a software company; WatchGuard Technologies Inc., a provider of Internet security services to small and midsize businesses; and Ditech Communications Corp., a telecommunications equipment company were all in the portfolio during the first quarter.
Zomax Inc., which provides packaging services for companies such as Microsoft Corp., and Emulex Corp., which provides high-speed data transfer facilities for computer systems, also were winners for the portfolio.
Insight Capital Research's aggressive growth portfolio ranked 10th for the quarter, with a return of 31.4% and sixth for the year, with a 186.02% return. Its midcap growth portfolio ranked 12th for the quarter, with a 29.97% return, ninth for the year, with 178.56%, and 15th for the five-year period, with 50.27%.
Walnut Creek, Calif.-based Insight's aggressive growth portfolio is invested "70% to 80% in technology," according to portfolio manager Tamara Allen. The portfolio owns stocks in the semiconductor, communications equipment, computer software and telecommunications areas.
Holdings include PMC Sierra Inc., a chip maker; JDS Uniphase Corp. and SDL Inc., fiber optics companies; Sun Microsystems Inc.; and Oracle Corp.
The midcap growth portfolio follows a similar investment style, but with constraints on the market capitalization of companies in which it invests.
Oil and gas exposure
Both also have exposure to some oil and gas companies, including Noble Drilling Corp. The midcap portfolio also holds BJ Services Co., an equipment supplier.
Emerald Capital Management, Lancaster, Pa., had its aggressive growth portfolio in third place for the quarter, with a return of 36.44%, and 15th place for the three-year period, with 71.37%.
Driehaus Capital Management's midcap growth equity portfolio ranked third for the year and three-year periods, with returns of 205.87% and 86.44%, respectively. The portfolio also ranked fourth in the five-year listings, with 55.25%.
Driehaus' small-cap growth equity portfolio ranked fifth for the one-year, eighth for the three-year and fifth for the 10-year rankings, with returns of 186.26%, 76.96%, and 37.58%, respectively. The midcap portfolio invests in firms ranging from $1.5 billion to $8 billion in market cap, while the small-cap portfolio invests in firms from $500 million to $1.5 billion in size.
Meighan Harahan, a portfolio manager for the midcap portfolio at Chicago-based Driehaus, said the portfolio has higher weightings in technology, communications, semiconductor, and Internet infrastructure companies. Firms in the portfolio include BroadVision Inc., Internet Capital Group LLC and Qualcomm Inc.
Mark Genovise, portfolio manager for the small-cap portfolio, said he likes companies "with positive earnings surprises -- companies with good group sentiment and good technical indicators." Companies in the portfolio include Cree Inc., a semiconductor company, and CYTYC Corp., a biotechnology company that makes a new test for cervical cancer.
Showing that some value stock managers can perform well, John Hancock Funds' JH Small Cap Value strategy ranked first among managed value portfolios for the one-year period, with a return of 120.56% and second for the three-year period, with 44.72%.
Tim Quinlisk, portfolio manager for the fund, said one of the ways in which the fund makes its returns is through "valuation arbitrage, when you find a company that is statistically cheap from where it normally sells in the marketplace."
But basically, he looks for stocks that are cheap and companies that have a good business and good business model. He also looks for companies that "have a catalyst that will unlock its value for us."
While, he "looks at all sectors across the board," the fund now is invested in several small-cap technology and semiconductor companies. Mr. Quinlisk said the fund has about the same technology weighting as the Russell 2000 index, which had a 21.3% return for the year.
The portfolio holds between 50 and 70 companies, with about 35% to 45% in just 10 stocks.
"We want to get impact from our stocks. We get our alpha from stock selection," he said.
Companies in the portfolio now include Vicor Corp. and CTC Communications Inc.
Among commingled equity funds, GEM Capital Management's special equity fund ranked first for the quarter and one-year periods, with returns of 41.16% and 226.12%, respectively. Sanford Rich, principal of New York-based GEM, said the fund invests in "special situation equities" and only has between 12 and 15 holdings at any one time.
"We are long-term investors," said Mr. Rich.
Winstar Communications Inc. is the fund's largest holding, followed by Nextel Communications Inc. and Cell Pathways Inc., a biotechnology company.
The Roanoke Partners LP fund of Roanoke Asset Management, New York, ranked fifth for the quarter, with a return of 26.22%, and second for the 12 months, with 196.99% return.
Edwin Vroom, principal, said the fund is heavily weighted in technology, telecommunications and biotechnology stocks.
"We have been strong in enterprise software, semiconductor and the fiber optics transmission area," he said. The fund's largest holdings at the moment are Business Objects SA, Rational Software Corp. and Citrix Systems.