There were three small-cap strategies in the top 10 for the year ended March 31, while there was only one each for midcap and large-cap strategies.
Chickasaw Capital Management LLC's MLP composite topped the ranking for the year with a gross return of 37.45%. It was one of four master limited partnership strategies in the top 10. It also had the seventh highest five-year returns at 20.3%.
The strategy typically has no more than 25 holdings, almost entirely in midstream energy, said Matthew Mead, co-founder, principal and portfolio manager at Memphis-based Chickasaw. The portfolio focuses on delivering total returns from yield, growth and changes in valuations.
“We believe that the U.S. is in the early innings of a long-term energy renaissance, and that MLPs will benefit from organic growth projects tied to the continued development of shale energy basins,” he said.
The strategy focuses on MLPs that own and operate infrastructure assets such as pipelines and storage facilities as opposed to the exploration and production sector, which are more commodity-sensitive businesses.
“Our guys we're investing in will provide all the infrastructure to get that product to market,” Mr. Mead said.
Mr. Mead said MLPs tied to crude oil and natural gas liquids performed the best over the last year. The two largest positions are in Enterprise Products Partners LP and Plains All-American Pipeline LP.
Following Chickasaw was the health value strategy managed by Financial Trust Asset Management, Boca Raton, Fla., that returned 34.33%. It is a quantitative-oriented strategy, but differs from “factor chasing” quantitative managers because it always uses historical data and doesn't change factors based on different market environments, said Arno Mayer, founder, president and portfolio manager for the strategy.
The strategy always uses the same factors as well as a risk-controlled discipline.
“There are a handful of factors, but the main one we use is the price-to-sale ratio as the main metric for determining value,” Mr. Mayer said. Short-term momentum is also a significant factor, he added.
The portfolio always consists of 50 health-care stocks with a 2% allocation to each. The portfolio is rebalanced each month to stay within those parameters and has about a 20% turnover rate each month. Some of the individual holdings that contributed to the strategy's success over the past year were Albany Molecular Research Inc., Dendreon Corp., Abbott Laboratories and AstraZeneca PLC, Mr. Mayer said.
“We concentrate on value and momentum,” Mr. Mayer said. “We really try to focus on the twin aspects of keeping inexpensive names with positive momentum.”
Mr. Mayer said the big pharmaceutical companies have started to solve the issue of patent expirations that has persisted over the past couple years and the Obama health-care plan is having a positive effect on health-care stocks.
Following the Financial Trust strategy was Cooke & Bieler's small-cap value strategy, with a 33.59% return. It is the third straight quarter the strategy has finished in the top three for one-year returns.
The strategy focuses on three qualities in its stock picking — an enduring franchise, appropriately leveraged balanced sheet and a discount to future cash flow, said Steve Lyons, Philadelphia-based partner and portfolio manager.
“In general, the investment decisions over the last few years laid the groundwork for outperformance in the last 12 months,” Mr. Lyons said. “We want to see companies that compound value over time.”
The strategy typically holds 40 to 45 stocks with an annual turnover rate of 20% to 40%. Mr. Lyons said half of the holdings outperformed the Russell 2000 benchmark in the past 12 months and any sector the firm had more than one holding in outperformed the relative sector benchmark.
Cooke & Bieler doubled its weighting to companies with exposure to the purchase of big-ticket items last year, resulting in 700 basis points of outperformance, Mr. Lyons said. That included investing in areas such as auto suppliers, home builders, building suppliers, and makers of recreational vehicles and boats. The weighting was recently pared when many of the companies reached their intrinsic value, he added.
The strategy's median market capitalization is just less than $2 billion with a $3 billion market cap maximum. Some of the stocks that contributed to the portfolio's success were Winnebago Industries Inc., AMN Healthcare Services Inc. and American Woodmark Corp.
Rounding out the top five for the one-year ranking were AMI Asset Management Corp.'s small-cap growth composite, 32.69%, and Invesco Ltd.'s MLP strategy at 32.54%.
For the five-years ended March 31, 12th Street Asset Management's small-cap value and asset opportunity strategies were first and third with compound annualized returns of 30.96% and 24.79%, respectively. Both portfolios primarily invest in environmental services, retail and transportation companies. It is the eighth straight quarter 12th Street has had the best five-year return.
Sandwiched between 12th Street's strategies was the tactical equity income strategy managed by Good Harbor Financial LLC with a 25.64% return. (All returns for periods of more than one year are annualized.)
The Good Harbor portfolio is made up of about 20 holdings as well as options on some positions, said Neil Peplinski, Chicago-based co-founder and managing partner. Risk premiums are the driver of the strategy, as firm managers believe that how investors feel about risk drives equity prices in the short term. If investors are more fearful, that results in higher risk premiums, he said.
“That dynamic is something we feel is pretty fundamental to how the market works,” he said.
The strategy looks for stocks with consistent cash flow and attractive discount rates. Mr. Peplinski said it is often natural-resource-driven and many holdings have included MLPs and real estate investment trusts.
“Our universe will be companies that have those tangible assets because it moderates cash flow fluctuations,” Mr. Peplinski said. He added that the strategy will never invest in technology or pharmaceutical stocks.
Currently, the firm sees a lot of opportunities on the energy side and is weighted about 25% to 30% in energy trusts. While the strategy does not target dividend-yielding stocks specifically, Mr. Peplinski said an attractive part of the portfolio is an income component that is mainly derived from dividends.
Rounding out the top five for five-year returns were MLP strategies from Invesco and Salient Partners LP at 24.4% and 22.4%, respectively.
The median five-year return for all separate account strategies in the Morningstar universe was an annualized 7.47%, while the Russell 3000 returned an annualized 6.32% during the same period.
Among collective trusts, midcap strategies made up seven of the top 10 strategies for the year ended March 31, but a real estate strategy and a smidcap value strategy finished in the top two positions, respectively.
Principal Global Investors' Global Property Securities led the way for the second straight quarter with a one-year gross return of 24.16% as of March 31, followed by Edge Asset Management Inc.'s Smidcap Value Equity Fund at 23.31%.
The rest of the top five strategies were BlackRock Extended Alpha Tilts at 23.25%; Mellon Capital Employee Benefit DO Midcap Core Fund at 22.92%; and Pyramis Global Advisors' Small Cap Core Pool strategy at 22.3%.
The median one-year return for collective trusts as of March 31 was an annualized 14.58%. n
