It's real estate all the way.
In the Morningstar Separate Account/Commingled Fund Database report for the year ended Dec. 31, real estate strategies dominated other equity approaches. Eight out of the top 10 managers had a real estate focus.
"It's not a surprise given real estate … has been on a tear," said Steve Deutsch, director of separate accounts-collective investment trusts at Morningstar. "The results so far would indicate that at this particular point of time, real estate, an international component, value and a small-capitalization approach seem to have been the drivers of the overall results."
Cohen & Steers Capital Management Inc., New York, led the overall U.S. stock and specialty category with its European real estate securities strategy, which returned 70.1%. That compares with the median return of 14.7%.
The Cohen & Steers European Real Estate Securities composite holds REITs and other publicly traded real estate companies in the United Kingdom and continental Europe. (Although the portfolio's holdings are 100% non-U.S., Morningstar includes it in the broad U.S./specialty equity category because that category encompasses all REIT separate accounts in the Morningstar database.)
Ranking second for the year was the multicap long/short strategy of Trapeze Asset Management Inc., Toronto, which returned 50.8% last year. Randall Abramson, chief executive officer of Trapeze and co-portfolio manager of the long/short strategy, said energy stocks boosted Trapeze's returns, although the composite also benefited from retail and gold stocks. In comparison, the Russell 3000 index earned 15.7% for the year.
"I believe only half of overall energy stocks were up last year, but from a bottom-up standpoint, our companies did well," Mr. Abramson said.
Some of the portfolio's top performing stocks were Pan-Ocean Energy Corp. Ltd.; Petrolifera Petroleum Ltd., which made a significant discovery in Argentina; and Eastcoast Energy Corp., which made headway in its natural gas sales in Tanzania, Mr. Abramson said. In retail, Abercrombie & Fitch Co. and La Senza Corp., the Canadian lingerie chain that was acquired by Limited Brands Inc., proved worthwhile investments.
Yet Mr. Abramson was cautious when asked whether 2007 will bring similar results.
"I would always say no," he said. "Our aim is to produce 12% returns."