(Harper Asset Management's small-cap value strategy returned 155.58% (154.32% net of fees) for the year ended March 31. Incorrect figures were provided for this special report.)
Top equity performers posted triple-digit gains in the year ended March 31, with the returns of small-cap value managers leading the pack in Morningstar Inc.'s separate account/ collective investment trust database.
Among the top 10 managers, four produced gross returns of more than 150%; the best-performing strategy for the 12-month period out-earned the top manager for the 12 months ended Dec. 31 by more than 60 percentage points.
During this most recent reporting period, six of the 10 top equity performance slots went to small-cap value managers, while three went to managers who invest primarily in real estate investment trusts real estate. The remaining slot went to a midcap value manager.
Overall, the median return in the separate account equity universe was 52.89% for the year ended March 31, slightly ahead of the 52.44% gain by the Russell 3000 index.
The powerful overall performance for this latest reporting period can be attributed to a rebound in the equity market — fueled by a growing investor confidence in economic recovery that has led to an enhanced appetite for investment risk.
The enhanced appetite for risk, according to Steve Deutsch, director of separate accounts and collective investment trusts for Chicago-based Morningstar, is demonstrated by a progression of investment first into large caps, then midcaps and now into small caps over the course of the previous 12 months.
“Things really do seem to be returning to normal course, with the markets returning as you would expect,” Mr. Deutsch said.
One reason small-cap stock returns are up so dramatically might be that this is the first 12-month period report that excludes any of the down quarters from the stock market collapse, with the market upturn generally recognized as having started during the second quarter of 2009, said Adam Baranowski, a Morningstar data analyst for separate accounts and collective investment trusts.
“The one-year trailing returns finally shook off the effects of the 2008 market crash,” Mr. Baranowski said. “This is only taking into account the quarters where the market did very well. That's why we're seeing small caps, which are comparatively sensitive to market downturns, rise to the top all of a sudden.”
Mr. Baranowski said that many of the top equity performers also had strong microcap exposure.
Mr. Deutsch said the fact that some REIT managers were among the top 10 is evidence that some investors don't think the real estate market is in as bad of shape as many others often believe.
For the year ended March 31, the four managers reporting gross returns of more than 150% were Harper Asset Management LLC, whose small cap equity strategy returned 155.58%; Wentworth Hauser & Violich Investment Counsel's microcap equity portfolio, 173.19%; Cohen & Steers Inc.'s Realty Focus, 158.59%; and the U.S. small-cap value strategy of Brandes Investment Partners LP, 154.93%.
Donald Smith & Co. Inc.'s microcap value strategy just missed the 150% mark, returning 149.16% to come in fifth. Texas First Investment Management Co.'s small-cap opportunity portfolio came in sixth with 142.34%. Texas First was the only firm to place in the top 10 for both the one- and five-year periods. The small-cap opportunity strategy placed ninth for the five years ended March 31, with an annualized 13.12%.
Brandes Investment Partners had two strategies in the top 10 for the year, with its midcap value portfolio ranking 10th with a gross return of 124.73%.