Skip to main content
MENU
Subscribe
  • Sign Up Free
  • LOGIN
  • Subscribe
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Face to Face
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2023 Defined Contribution East
    • 2023 ESG Investing
Breadcrumb
  1. Home
  2. Print
August 21, 2006 01:00 AM

TOP MANAGERS: Small-cap, energy strategies top charts once again

Jay Sherman
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print

    When it comes to equity portfolio performance, size matters. And so does energy.

    Small-cap and energy portfolios continued their reign as the top-performing equity separate accounts for the year ended June 30, according to data released by Morningstar Inc., with two energy strategies managed by BlackRock Inc., New York, taking the top two spots. BlackRock's small-cap energy portfolio returned 49.9% while its all-cap energy approach gained 49.2%.

    The latest data continued what is shaping up to be a tradition in the Morningstar Separate Account/Commingled Fund Database: small-cap and energy stocks drive performance these days. Indeed, five of the 10 best-performing accounts included in the Morningstar data were small-cap portfolios, while three of the top performers came from the energy category.

    The strong showing by small-cap and energy portfolios helped drive the median return for the composite U.S. stock category to 11.7% for the year. By comparison, the S&P 500 index gained 6.6% for the 12-month period, while the Russell 3000 index returned 9.6%. The small-cap oriented Russell 2000 index returned 14.6% for the year. The Dow Jones Energy index returned 26.3% for the year.

    Following the BlackRock portfolios, in third place, was a small-cap strategy from Insight Capital Research & Management, Walnut Creek, Calif., which returned 45.4%, followed by the small-cap to midcap value portfolio of Lord Abbett & Co., Jersey City, N.J., which gained 44.6%.

    The small-cap growth strategy from San Francisco-based Wells Capital Management snagged fifth place with 43.7%, followed by a classic hedge fund and concentrated-growth strategy, both managed by Husic Capital Management, San Francisco. Husic's hedge fund returned 42.4%, and the growth portfolio returned 41.4%. Mandeville, La.-based Orleans Capital Management Corp.'s energy portfolio was next with 41.3%, followed by a small-cap growth approach managed by Husic that gained 41.2%. A small-cap strategy run by Boston Asset Management Inc., Clearwater, Fla., filled out the top 10 with a return of 40.9%.

    Ironwood Capital Management, Boston, which snagged the top spot in the second quarter with its small-cap growth portfolio, was knocked out of the top 10 for the most recent period.

    The long haul

    For Daniel J. Rice, managing director and portfolio manager at BlackRock, the latest Morningstar results were another affirmation of a strategy that is more analogous to a marathon than a sprint.

    "Our strategy has always been to predict longer-term commodity prices," Mr. Rice said. "We spend no time analyzing spot (prices), and that helps us focus on what really runs the longer term performance. People's myopic fascination with spot prices tends to keep them from making money."

    It's a strategy that means Mr. Rice will occasionally stick with stocks that have fallen out of favor with the rest of Wall Street. Such is the case with coal-mining company Massey Energy Co., Richmond, Va., whose stock price has tumbled 35% since the start of the year and is trading around $26 a share these days. Mr. Rice's analysis says the stock should be trading at $40 to $45 a share, and he reckons either the stock market or a buyer will eventually push the stock to that level.

    At Husic Capital, which has three portfolios in the top 10, Frank Husic, the firm's managing partner and chief investment officer, said his firm has always focused on spotting trends early enough to respond accordingly.

    "We think one of the things we do well is to anticipate change and be early in spotting trends," Mr. Husic said. "Once we identify new themes, we are very good at ferreting out who is most leveraged to that new theme, and we move our portfolio and concentrate in those themes."

    To that end, Mr. Husic said the firm is paying close attention to the industrialization of emerging markets, and is placing bets that demand for goods and services long out of favor in industrialized markets — including copper, steel and cement — will become highly coveted as those developing countries look to modernize their infrastructure. Likewise, challenges confronting the housing and automotive industries in the United States are leading him to short stocks of companies that supply to those industries. Among those shorted: retailers Costco Wholesale Corp., Issaquah, Wash., and Wal-Mart Stores Inc., Bentonville, Ark., both of which serve customers vulnerable to higher energy prices.

    Steven McBoyle, Lord Abbett senior portfolio manager, said his investment technique is less about investing in sectors than identifying stocks that offer promise of high returns. "The (fund's) performance is driven more by stock selection," Mr. McBoyle said. "Sector bets have had a neutral impact."

    Indeed, at a time when Wall Street was hot for energy stocks, Lord Abbett was underweight in the sector, and instead had holdings in technology, which has completely fallen out of favor with most investors.

    "We look for quality companies with long operating histories that are not new to the public domain," Mr. McBoyle said, noting that the companies he selects show positive fundamental change, improvements in net operating margin and sequential earnings improvement. He also mines data, including insider buying patterns, to identify companies with positive outlooks. Some of the companies he likes include magnetic resonance imaging maker Intermagnetics General Corp., Latham, N.Y., and cable and wire distribution company Anixter International Inc., Glenview, Ill.

    3-way attack

    Brandon Nelson, portfolio manager at Wells Capital Management, deploys a three-pronged approach of identifying companies with robust and sustainable growth, revisions of earnings and revenue estimates by Wall Street analysts and the confirmation by market indicators of a company's fundamental strength.

    "The way we see the world is that we think growth-stock returns are driven by financial performance relative to market expectations, and that market expectations adjust very slowly to new information," he said. "We've designed our process to try to exploit that."

    That means that Mr. Nelson and his team focus on identifying leading indicators of future underestimated growth, and then try to respond quickly to that new information.

    He also believes in diversity, and as such has focused his attention on technology, health care, financial services and energy. "Any economic environment has pockets of opportunity and our job is to find those pockets," he said.

    Mr. Nelson said a stock that has performed well for Wells Capital in terms of performance is weight loss company NutriSystem Inc., Horsham, Pa. "It's one stock that we have owned for over a year now, and clearly met all of our criteria," he said. "We had high hopes for NutriSystem when we purchased it, and it has exceeded our estimates.

    At Insight Capital, the current economic environment has led portfolio managers Lee Molendyke and Lance Swanson to become more defensive in their strategy as growth stocks continue to struggle.

    "We are very bottom-up growth managers looking for, when possible, top-line accelerated, earnings-driven growth," Mr. Swanson said. "But when headwinds occur, we don't try to fight for sure. We become a lot more defensively positioned."

    The small-cap strategy they manage is currently overweighted in energy stocks, most notably oil-services companies that provide tools for the large oil companies to improve production. They have pared their technology holdings on the belief that downward earnings revisions are likely in technology companies' future.

    Another stock they have nearly completely sold their position in is beverage company Hanson Natural Corp., Corona, Calif. After being a top performer earlier this year, the stock has tumbled more than 40% in the last month.

    "We have been surprised how quickly cyclicals have reversed in the last few months," Mr. Swanson said.

    For the five-year period ended June 30, energy, small-cap and real estate funds comprised a large portion of the top 10 performing separate account funds.

    BlackRock leads

    BlackRock's small-cap energy strategy again snagged the top spot, with an annualized return of 33.5%, followed by Pasadena, Calif.-based First Wilshire Securities Management Inc.'s managed account, which gained an annualized 29%, and by Lake Forest, Calif.-based WCM Investment Management's managed-account portfolio at 28.8%. The small-cap value portfolio managed by ZPR Investment Management, Orange City, Fla., was next with a return of 28.5%, followed by Ativo Capital Management, Chicago, whose small-cap strategy returned 27%.

    The median return for the five-year period was an annualized 6.8%, compared with 3.5% of the Russell 3000.

    In the commingled fund category, funds made up of small-company stocks accounted for a majority of the top 10, led by Fidelity Investment's Pyramis Global Advisors, Boston, whose small-company commingled fund returned 25% for the 12-month period. That was followed by Atlanta-based INVESCO's REIT fund, which gained 24.9%, and Chicago-based ABN AMRO Asset Management's North American REIT, which gained 23.7%. Rothschild Asset Management Inc., New York, was next, with a 21.8% return for its small-cap trust commingled fund. Rounding out the top five was a small-cap value fund run by Donald Smith & Co., New York, that gained 20.6%.

    The median one-year return for commingled funds was 11.8%, while the five-year median return was an annualized 5.7%.

    Recommended for You
    Read the print edition of P&I
    Read the print edition of P&I
    Citadel's Ken Griffin gives $125 million to Chicago museum; name will change
    Citadel's Ken Griffin gives $125 million to Chicago museum; name will change
    Gender diversity is improving on FTSE 350 boards
    Gender diversity is improving on FTSE 350 boards
    The Institutional Investor's Guide to ESG Investing
    Sponsored Content: The Institutional Investor's Guide to ESG Investing

    Reader Poll

    January 25, 2023
    SEE MORE POLLS >
    Sponsored
    White Papers
    Show Me the Income: Discovering plan sponsor and participant preferences for cr…
    The Future of Infrastructure: Building a Better Tomorrow
    Outlook 2023: Opportunity in a volatile world
    Research for Institutional Money Management
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    December 12, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Face to Face
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2023 Defined Contribution East
      • 2023 ESG Investing