Small-cap stocks, particularly growth strategies, dominated the best-performing domestic equity strategies for the year ended Dec. 31, according to Morningstar Inc.'s separate account/collective investment trust database.
Nine of the top 10 strategies for the year were small-cap equity, including seven growth strategies. There were seven small-cap strategies in the top 10 for the year ended Sept. 30, but only three of them remained on the list at the end of the fourth quarter. (The three were growth strategies managed by Lord, Abbett & Co. LLC and Granahan Investment Management, anO'Shaughnessy Asset ManagementO'Shaughnessy Asset Management.
The median return for all equity strategies for the 12 months ended Dec. 31 was 35.33%, topping the Russell 3000 index return of 33.55% for the period. Growth strategies marginally had the lowest median return for the fourth quarter, but were tops for the year ended Dec. 31 with a median 36.65%. Value and blend strategies had median returns of 35.07% and 34.7%, respectively, for the year.
“It's pretty obvious small-cap growth managers and small-cap growth strategies are taking over the scene,” said Andy Kwon, Chicago-based data analyst at Morningstar. “Small cap has dominated the lists for most” of 2013, he said.
Still, Mr. Kwon expects to see more large-cap strategies rising to the top in the coming quarters. Large-cap portfolios of all types had a median 10.15% return in the fourth quarter, topping small caps, 9.35%; and midcaps, 9.04%.
“It might be very possible they are in the top-10 lists next quarter,” Mr. Kwon said.
Another emerging trend is small-cap strategies in the top 10 for the five years as of Dec. 31. Seven of the top 10 are small-cap strategies, up from four the previous quarter. All four from the five years ended Sept. 30 remained in the top 10. The rise of the small-cap managers came at the expense of energy strategies, which had dominated the rankings.