Value equity managers are striking back at real estates recent dominance in Morningstars Separate Account/CIT Fund Database.
Three value equity strategies and four real estate strategies placed among the top 10 performers for the one-year period ended March 31, according to Morningstar. In the previous quarter, eight of the top 10 strategies were real estate.
It might just be a product of real estate underperforming, rather than value or other strategies outperforming, said Steve Deutsche, Morningstars director of separate accounts and collective investment trusts.
Cohen & Steers Inc., New York, maintained its top spot in overall equity strategies. But although the Cohen & Steers European Real Estate strategy once again significantly outperformed the rest of its peers, returning 44.85% for the year, the performance was a significant dropoff from the 70.05% for the year ended Dec. 31, 2006.
Might it be that real estate hit its market top at the end of last year? That could very well emerge as the case, said Mr. Deutsche. But only time will tell.
Cohen & Steers had two other real estate strategies in the top 10 for the first quarter its Asia Pacific real estate strategy was fifth with 35.55% and its global realty total return strategy was seventh at 33.87% so real estate-based strategies still had some firepower.
But both realty strategies also showed declines from the earlier quarter. The Asia Pacific strategy returned 35.39% for the year ended Dec. 31, while the global realty total return strategy posted a one-year return of 48.04% at the end of December. Joseph Harvey, president and chief investment officer at Cohen & Steers, could not be reached for comment.
Three non-real estate separate account strategies took second through fourth position in the most recent top 10: the Trapeze long-only equity strategy, run by Toronto-based Trapeze Asset Management Inc., with 39.63%; a large-cap concentrated value equity strategy from Donald Smith & Co., New York, at 37.07%; and St. Louis-based Fiduciary Asset Management LLCs master limited partnership strategy, with 36.57%.
Rounding out the rest of the top ten were Trapezes long-short equity strategy, with a 34.46% return; Goldman Sachs Asset Managements global property strategy, 32.37%; Eqis Capitals utilities strategy, 31.71%; and RS Investment Management Co.s equity dividend yield strategy, 29.0%.
For the one-year period, the median separate account strategy returned 9.53% and the Russell 3000 Index returned 11.28%. Value equity strategies outperformed growth, with the median value strategy returning 13.75% for the year vs. 4.77% for growth.
Trapeze CEO Randall Abramson said that the firm was able to separate itself from the pack by targeting opportunities in oil, gold and commodities during the last 12 months.
Companies such as Pan-Ocean Energy Corp. Ltd., Corridor Resources Inc. and Petrolifera Petroleum Ltd. specifically contributed to the Trapeze portfolios outperformance, said Mr. Abramson. Petrolifera, for one, has increased its value tenfold since Trapeze invested in the company.
Mr. Abramson added that the returns were aided by the declining value of the U.S. dollar because the three firms and other companies it invested in trade on Canadian exchanges.
The Trapeze long-only strategy also had staying power, returning a compound annualized 38.99% for the five years ended March 31, while its long-short strategy returned 35.71%, the second and fourth best separate account equity strategies during the time period, respectively.
Coming in at No. 1 one overall for the five-year period was Insight Capital Research Inc.s concentrated emerging growth strategy. The Walnut Creek, Calif.-based firms all-cap strategy returned compound-annualized 42.6% for the five-year period, compared with a median return of 7.75% for equity managers over the same period.
Cohen & Steers European real estate strategy took third with 36.01% over the five-year period, while James Investment Research Inc., Alpha, Ohio, came in fifth with 34.45%.
Insight portfolio managers Lee Molendyk and Lance Swanson attribute the prolonged outperformance to the firms three-step approach. It starts with a quantitative review of the equity universe that narrows the total number of securities from 6,500 to 400 that fit Insights criteria for investments, they said in an interview. Then the two portfolio managers evaluate the earnings and revenue growth of the 400 companies; lastly, they determine which companies have the strongest and most sustainable potential to produce market returns.
The results have been impressive, but the portfolio managers are still looking for more. Im actually disappointed with the performance, said Mr. Swanson, despite the strategy nearly doubling the returns of the next closest growth strategy. We always feel like we can do better; were perfectionists.
Among domestic collective trusts, or commingled strategies, the top five performers for the year ended March 31 were: Cloud Neff Management LLC, Tulsa, Okla., with 28.05% for its quantitative value fund; INVESCO Institutional, Atlanta, with a 24.49% return on its equity real estate trust; Donald Smith, with 24.11% for its small-cap value equity fund; General Motors Asset Management, New York, with 23.75% for its public real estate trust, and Adelante Capital Management LLC, Oakland, Calif., with 23.02% for its total return fund.
For the five-year period, the five best performers, all with compound-annualized returns, were: INVESCOs real estate equity trust, 25.82%; Adelantes total return fund, 24.82%; AEW Capital Management LP, Los Angeles, with a 24.26% return on its public equity REIT fund; AEWs diversified REIT strategy, which returned 24.22%; and GM Asset Managements public real estate trust, 23.77%. n