Small-cap value commingled equity funds shined brightly in the final quarter of the millennium.
Twelve of the top 15 commingled equity funds in the quarter ended Dec. 31 were value style, according to Pensions & Investments' Performance Evaluation Report. Of the top four funds, three were small-cap value.
At Oppenheimer Capital, New York, the best performing stocks in its Small Cap Value Equity Fund did very well while its worst picks did not upset the overall performance greatly, said Mark Degenhart, vice president and portfolio manager. The fund's 12.1% fourth-quarter return made it the second-best-performing commingled equity fund for the quarter, trailing only Neenah, Wis.-based Associated Bank's Regional Bank fund's 12.4% return.
The Oppenheimer fund's 15 best-performing stocks provided 10.9 percentage points of the fund's return, while the bottom 15 reduced the return by only 2.8 percentage points.
The quarter capped off a good year for the fund, which had the sixth highest return for the 12 months among all PIPER commingled equity funds, with a 39.3% return. In comparison, the Russell 2000 value index universe returned 8.1% during the period.
The median commingled equity fund in the PIPER universe dropped 6.2% for the quarter, broke even for the year and gained an annualized 17.3% for the five years ended Dec. 31. The Standard & Poor's 500 stock index returned -7.8%, -9.1% and 18.3% in those periods.
The managers of small-cap value funds all seemed to have a different view of which sectors were best in the fourth quarter.
Health care and technology helped David J. Greene & Co.'s DJG Small Cap Value fund, said Ben Nahum, portfolio manager, which had an 11.9% return and finished third among all commingled equity funds in the fourth quarter.
The energy, transportation and financial sectors produced very well for Wilshire's Small Company Value Fund, said Brian Lee, senior associate at Wilshire Asset Management, Santa Monica, Calif. It gained 11.7% in the fourth quarter, placing it fourth among commingled equity funds for the period.
Oppenheimer's Mr. Degenhart could not pin down specific sectors that were most beneficial. "We had a lot of names," he said of the fund's stock mix, adding the fund tried to avoid making "sector bets." Some of the fund's better performing stocks were from a mixed bag of companies: Maximus Inc., which provides health and human services consulting to state and local governments; Omnicare Inc., a pharmaceuticals firm; Teleflex Inc., an industrial supplies manufacturer; and Cambrex Corp., a chemical manufacturer.
Wilshire's Mr. Lee mentioned energy equipment provider Tidewater Inc., petroleum distributor Ultramar Diamond Shamrock Corp., GATX Corp. and insurance company Fidelity National Financial Inc. as top performers in the Wilshire fund.
Greene's fund was boosted by its shares of Lanier Worldwide Inc., which agreed to be acquired by Ricoh Co. last November. HealthSouth Corp. and Unisys Corp. also were great performers Mr. Nahum said.
With an 11.7% return for the quarter, U.S. National Bank of Galveston (Texas) Value Equity fund, a large-cap value fund, tied the Wilshire fund for fourth place, rounding out the top five commingled equity funds.
Grantham Mayo Van Otterloo's GMO Fundamental Value fund was the only fund to appear on the top 15 list of commingled equity funds for the quarter, one- and five-year periods ended Dec. 31. With a 9.9% return for the quarter, it finished in 12th place. It was one of only two value equity funds to appear on the top 15 lists for the one- and five-year periods with returns of 48.9% and 29.6%, respectively, placing it seventh and fifth. (All returns for periods of more than a year are compound annualized.)
GMO U.S. active portfolio manager Peter Blum said in a written statement, "The GMO Fundamental Value Fund, given its small size and opportunistic style, was best positioned to take full advantage of the positive value climate."
Value in all capitalizations was a driving force in the top 15 separately managed equity accounts. Seven of the top 15 managed accounts for the fourth quarter use value strategies.
Pzena Investment Management LLC's value service account had the seventh highest overall equity return and the highest return of any small-cap value equity managed account in PIPER for the fourth quarter with a 19.1% return. 2000 was, "a pretty spectacular year," said Bill Lipsey, principal of the New York-based firm He believes disciplined deep-value firms such as Pzena were rewarded. "It was stock picking," he said of the cause for the account's success.
For example, Pzena more than doubled its money on CBRL Group Inc., which operates the Cracker Barrel restaurant chain. Pzena bought its shares of CBRL approximately one year ago when shares were around $8, which is less than half of what the shares were worth by the end of 2000. The firm's managers were interested in the fact that CBRL owned all of its stores and the real estate. Lubrizol Corp., Aetna Inc. and Healthnet Inc. were also beneficial to the account, he said.
Long-term growth trend
The top managed overall equity account in the fourth quarter was Gelfand Partners Asset Management's Ohio Heartland portfolio with a 54.5% return. It was followed by: First American Asset Management technology account, 45.5%; GW Capital Inc. small-cap to midcap equity account, 27.5%; Aronson + Partners' dollar-neutral L/S account, 26%; and NewBridge Partners LLC's large-cap growth account, 23.2%.
The median return for managed equity accounts was -4.7% for the fourth quarter, 2.4% for the year and 17.9% for the five years ended Dec. 31.
For the longer term, growth equity accounts continued to show their muscle. For the five years ended Dec. 31. Essex Investment Management's growth managed account pulled down 51.1%, making it the best-performing overall equity account for the period.
In the commingled universe, a mere four growth equity funds registered positive returns in the fourth quarter. The fourth, PaineWebber Trust Co.'s Growth/Value Equity fund barely squeaked into positive territory, reporting 0.03%.
"The real question ... (is) will we be able to do as well as we have?" asked Dave Marvin, chairman of Marvin & Palmer Associates Inc., Wilmington, Del., of his firm's large-cap growth U.S. Equities fund, the top performing commingled equity fund for the five years ended Dec. 31 with a 34.8% return, despite returning -4% last year. The fund benefited from heavy weightings to technology, pharmaceuticals and financial services when those sectors were booming. Marvin & Palmer reduced the fund's weighting in technology before the sector's dismal performance, which started in the spring of 2000. The Nasdaq Composite (ex-income) index lost 39.3% of its value in 2000.
The best-performing managed equity accounts for the five years ended Dec. 31 were: Essex's growth equity, 51.1%; First American's technology, 50.6%; Mt. Auburn Management's concentrated large growth, 37.4%; Essex's midcap growth, 36.9%; and Pinnacle Associates Ltd.'s small/medium cap equity, 36.9%.