Small-cap investors maintained their lock on the top equity market returns for the year through Sept. 30, but their dominance over large-cap managers waned, according to Pensions & Investments' latest quarterly survey of mutual funds most used in defined contribution plans. click here for table
After years of torrid small-cap gains, it's becoming "more difficult to find true bargains," said Preston Athey, the portfolio manager of the T. Rowe Price Small Cap Value fund, which posted the survey's best equity return of 26.9%.
The latest rankings suggest large-cap equities might have the momentum now, with large-cap managers snaring 12 of the survey's top 25 spots, up from just seven for the year ended June 30.
For the year ended Sept. 30, the S&P 500 index rose 13.9%; the small-cap-focused Russell 2000 index rose 18.8%; and the Lehman Brothers Aggregate fixed-income index climbed 3.7%.
But equity and bond managers alike said the richness of current valuations makes it likely that returns on both asset classes will dip below 10% in 2005.
Baltimore-based T. Rowe Price Associates Inc.'s Mr. Athey said the runup in small-cap valuations has led him to look at sectors that haven't traditionally been a prime stomping ground for value investors. "Right now I'm finding some pretty good bargains in the small-cap technology space," but fewer jewels in the banking, utilities and heavy industry sectors, he said.
One stock Mr. Athey bought in the third quarter is Helix Technology Corp., a maker of semiconductor capital equipment. With the technology sector suffering recently, "this is an example of the kind of thing that's getting cheaper," he said. The stock is trading just above $13 dollars a share, near the bottom of its 52-week range of $12.53 to $27.90.