Fourth-quarter results of the Pensions & Investments Performance Evaluation Report show improved returns for technology and growth stocks.
For all of 2002, however, hedge fund long-short and market-neutral equity strategies were the best performers.
The median separate account return for overall managed domestic equity in the fourth quarter was 6.1%, compared with 8.4% for the Standard & Poor's 500 index. For the full year, the median was -20.8%, compared with -22.1% for the S&P 500.
Dalton, Greiner, Hartman, Maher & Co.'s Valuetech strategy came in first among all equity separate accounts for the fourth quarter with a return of 24.55%. Wellington Management Co. LLP's Global Technology portfolio was second for the quarter with a 21.21% return, while The Boston Co. Asset Management LLC's Premier Value equity strategy was third with 20.54%.
Stephen Bruno, executive vice president and portfolio manager at New York-based Dalton, Greiner said the Valuetech strategy has a "midcap flavor to it" and invests in technology stocks.
"Technology in general had a good fourth quarter after a dismal couple of years," Mr. Bruno said. The five top-performing stocks in the portfolio for the quarter were TTM Technologies Inc., up 111% for the quarter; Mentor Graphics Corp., up 61%; Actel Corp., up 56%; Supertex Inc., up 43%; and Advanced Energy Industries Inc., up 43%.
Six of the managers in the top 10 overall were the top growth stock universe managers for the quarter. In fourth-, fifth- and sixth-place overall were: Seattle-based Pengra Capital Management, whose Structured Demand Theme Equity strategy was up 20.23% for the quarter; Salt Lake City-based Wasatch Advisors Inc.'s Small Cap Ultra Growth account, 19.45%; and Seattle-based Zevenbergen Capital Inc.'s Z/Tech Growth portfolio, 19.3%.
Molly Pengra, chief executive officer and portfolio manager of Pengra Capital, said the strategy is very concentrated, holding as few as 15 stocks. One of the portfolio's largest holdings is Nextel Communications Inc., which was up 52.98% for the quarter.
"We focus on companies' earnings power three years out," said Ms. Pengra.
For the year, the overall leader was AXA Rosenberg Investment Management, Orinda, Calif., whose value long-short strategy returned 32.9%.
Kathryn McDonald, senior portfolio manager for long-short strategies at AXA, said, "It was a year when hedge funds earned their keep." She said the value long-short strategy holds as many as 1,000 stocks at a time, with 500 held long and 500 sold short.
The quantitative long-short strategy run by DLIBJ Asset Management U.S.A. Inc., New York, came in second for overall equity separate accounts for the full year with a return of 24.8%.
William Yost, senior vice president, said the account is a "quantitative, market-neutral, zero-beta fund" and the basic strategy is to "go long stocks in industries with good fundamentals and short stocks with poor fundamentals."
Bogle Asset Management, Wellesley, Mass., had its market-neutral strategy come in third for overall equity separate accounts for the year, with a return of 21.8%.
John C. Bogle Jr., founder and chief investment officer, said, "We just stuck to our knitting and focused on stock selection." He said the fund portfolio went long stocks with low valuations, with good earnings relative to their estimates and companies with "clean accounting."
For the separate account total managed value equity portfolios, The Boston Co.'s Premier Value Equity strategy which focuses on midcap stocks, was in first place for the fourth quarter with a return of 20.54%, and its Select Value Equity Management portfolio which focuses on small-cap value stocks, was in third place with a return of 18.23%. Wellesley Hills, Mass.-based Sun Capital Advisers Inc.'s Equity Strategy was in second place with a return of 19.29%.
Commingled equity funds overall had a median return of 7.1% for the fourth quarter and -21.2% return for the full year.
Small-cap and midcap value products from The Boston Co. took the three top spots for commingled funds in the fourth quarter. Its Premier Value Equity fund was in first place, with a return of 21.25%; the Select Value Equity Management fund returned 18.6%; and Small Cap Value Equity, 16.75%. Those three funds also held the top three spots in the commingled value universe for the quarter.
Richard Watson, head of sales and client service at The Boston Co., said "after a challenging 2002 it was nice we were able to have a decent fourth quarter for our clients." He declined to talk about specific strategies or holdings.
The Emerging Growth Fund from Copper Mountain Trust Corp., Portland, Ore., came in fourth among commingled equity funds overall and first in commingled growth for the fourth quarter, with a return of 16.08%.
James Cheadle, CIO, said the fund is subadvised by Winslow Capital Management and Kopp Investment Advisors, both of Minneapolis. Mr. Cheadle said Kopp is "fairly aggressive growth stock manager" that did particularly well in the fourth quarter. Winslow, he said, "is not nearly as aggressive," and the two funds balance each other out well.
REITs stay strong
For the full year, commingled funds that invested in real estate investment trusts had strong performance in the total equity universe, taking seven of the top 10 spots.
A REIT fund run by Wellington took first place for the full year with a return of 9.1%, and the firm's energy investment fund came in third for the year, with a return of 7%. Lisa Finkel, a spokeswoman for Wellington, said it is the firm's policy not to comment.
INVESCO's real estate fund came in second for commingled overall equity funds, with a return of 7.5%. James Trowbridge, portfolio manager of INVESCO Real Estate Advisors, Dallas, said the fund "focuses on property fundamentals, including supply and demand."
He said the fund took a defensive posture in 2002. The portfolio was underweight in office and apartment REITs; its managers thought that office REITs would struggle because of the poor economy and apartment REITs would have trouble because more people were buying homes.
The fund was overweight in retail REITs. "We felt with the consumer still spending, retail REITs would do well," Mr. Trowbridge said. The fund's top holding among mall REITs was General Growth Properties Inc., which was up 34% for the year. Among smaller shopping center REITs the fund's top holding was Pan Pacific Retail Properties Inc., which was up 27% for the year.