A volatile third quarter sent equity returns plummeting in Morningstar Inc.'s separate account/collective trust database for equity strategies.
Small-capitalization stocks continued to lead the one-year returns as of Sept. 30, but those strategies were buoyed by strong previous quarters, said Adam Baranowski, a data analyst with Morningstar in Chicago. Six of the top 10 portfolios in Morningstar's separate account U.S. equity universe for the 12-month period — including Nos. 1 and 2 — were small-cap strategies, which have dominated the list for five straight quarters.
Still, the plummeting returns caused a major shake-up in the rankings.
While there typically are several holdover strategies in the top 10 each quarter, only 12th Street Asset Management LLC's asset opportunity strategy was in the top 10 for the year ended Sept. 30, compared with the June 30 ranking.
“What stuck out to me was the high turnover of strategies on this top 10 list compared to the list last quarter,” Mr. Baranowski said. “The main story here is the poor overall performance of the equity strategies as a whole in the third quarter.” The median return for the equity universe was -17% for the quarter. Mr. Baranowski said the shake-up came because last quarter's top strategies did not perform well, not because the influx of new portfolios performed strongly.
Only three of the top 10 had positive returns in the third quarter.
The median returns for all broad equity classes were negative in the third quarter; the first time that has happened since the first quarter of 2009, Mr. Baranowski said. Small-cap strategies had the highest returns in the second quarter, but were the worst domestic categories in the third quarter returning -21.65% for growth, -21.24% for blend and -20.91% for value strategies, he said.
The Russell 3000 index returned -15.28% for the quarter and just 0.55% for the year ended Sept. 30.