(updated with correction)
Small-cap growth stocks dominated the list of best-performing domestic equity strategies for the year ended March 31, according to Morningstar Inc.'s separate account/collective investment trust database.
Seven of the top 10 equity strategies for the year were small-cap growth, which has been on a winning streak since the year ended Sep. 30, 2013. In fact, the small-cap growth strategies of Essex Investment Management Co. LLC, Falcon Point Capital LLC, Lord Abbett & Co. LLC and Oberweis Asset Management Inc. were among the top 10 in the Morningstar database for the second consecutive quarter.
“The overall domestic growth categories, they've had very strong quarters,” said Nicholas Sundberg, Chicago-based data analyst at Morningstar. “Last quarter, the small-growth managers were also pretty visible in the top 10.”
Overall growth strategies had the highest median return for the year ended March 31 at 25.29%. Overall value strategies returned 24.1% for the year, while the blended strategy returned 23.38%. The median return for all equity strategies was 24.12%, slightly higher than the Russell 3000 benchmark of 22.61% but below the median return of 35.33% for all equity strategies for the year ended Dec. 31.
Executives at Essex Investment Management seem to agree that 2014 will be a more challenging year for stocks. “We do think that — and it's been true so far — calendar 2014 won't be as smooth as calendar 2013,” said Nancy Prial, Evanston, Ill.-based portfolio manager and managing principal at Essex. “We think the market is more fairly valued.”
Morningstar's Mr. Sundberg also noticed a trend of lower returns for the quarter ended March 31 vs. the previous two quarters. “Across the board, everybody dropped pretty significantly,” he said, adding that most portfolios were “looking for returns in the 1% to 2% range, as opposed to returns of 8% to 10%.”
Still, he did note that recent equity returns remain relatively high. “I think it's pretty interesting to note how large the median one-year return was, 24.12% ... as opposed to the three-year number, 14.33%.”