A post-election stock market rally helped winning equity managers top up their returns in Pensions & Investments' latest quarterly survey of mutual funds most used in defined contribution plans.
But with valuations stretched, equity and fixed-income managers alike said it will be tough to deliver in 2005 even half of their 2004 gains.
The Standard & Poor's 500 index jumped 9.2% in the past quarter, lifting the full-year gain to 10.9%. The top 50 equity mutual funds all outperformed the index, with one-year returns ranging from 11.2% to 25.7% for the year ended Dec. 31.
No single niche dominated the latest winner's circle, with value and growth, concentrated and diversified, small-, midcap and large-cap funds all rubbing elbows. While value funds logged the top three equity gains, the latest survey found Janus Capital Group and Putnam Investments — prominent growth shops that stumbled when the great bull market of the late 1990s imploded — each fielding a top-10 equity manager.
"It's been a classic stock pickers' market," said Preston Athey, whose T. Rowe Price Small Cap Value fund posted the top equity 12-month return — 25.7% — for the second quarter running.
(Mr. Athey's fund also took top honors for the five-year period ended Dec. 31, with a compound annual return of 19.7% return. Second was the Fidelity Low Priced Stock fund, 19.4%, followed by the Lord Abbett Mid Cap Value fund, 18.3%; the Neuberger Berman Genesis fund, 17.7%; and the Ariel Fund, 16.8%.)
But the pickings, said Mr. Athey, have grown slim, perhaps especially in his segment of the market. If small-cap equity has grown to a sizable chunk of your portfolio, this might be the time to shift some money to sectors offering better value, including large-cap and midcap growth stocks, Mr. Athey said.