(updated with correction)
Real estate investment trusts continued to perform well for the second quarter in a row for the year ended March 31, accounting for five of the top 10 spots in Morningstar Inc.'s domestic equity separate account/collective investment trust database.
There was less of an overall dominance, however, than the fourth quarter, in which real estate securities and REITs accounted for eight of the top 10 overall domestic equity strategies in the year ended Dec. 31.
For the year, the remainder of the top 10 was a relatively even mix of traditional domestic equity strategies.
Nicholas Sundberg, data analyst — separate accounts at Morningstar Inc., Chicago, said there was no real dominant equity style for the year. He said the mix of styles “probably relates more to the strength of the individual strategies than anything asset class-based.” The median return of domestic equity strategies in the Morningstar universe for the year ended March 31 was 10.85%. The Russell 3000 index returned 12.37% in the same period.
Mazama Capital Management Inc. took both first and second places in the top 10.
Mazama's emerging manager small-cap growth strategy returned a gross 37.95% for the year, followed by the manager's small/ midcap growth strategy with 31.65%.
Ron A. Sauer, founder, CEO and chief investment officer of Portland, Ore.-based Mazama, said both strategies benefited from the firm's experience as well as its familiarity with newer companies.
“Between us all we have over 120 years of experience following the big four (sectors), and all of us attend industry events to keep current on not only the companies that are doing the best today but the emerging companies in the industries that have new products, new services that their customers are really excited about,” Mr. Sauer said.
“We have a lot of younger companies that a lot of managers don't follow that closely that ... are meaningful contributors to our portfolios,” he added.
Regarding the emerging small-cap strategy, “what's really special about it ... the average weighted market-cap of that portfolio is $1 billion and the average weight market cap of the Russell 2000 is over $2 billion.”
“We are taking the highest quality emerging small companies we can find in the country, much higher quality than a microcap portfolio, and we think it's the same quality or close to the Russell 2000 Growth, it's a great risk-reward proposition.”
It is the second quarter in a row that the Mazama's emerging small-cap growth was the top-performing strategy and companies like specialty retailer Zumiez Inc. and technology company Universal Display Corp. greatly contributed to the strategy's success.
Universal Display, which provides displays for some Apple Inc. products, also reflects Mazama's deep industry research, said Mr. Sauer. “The industry research we're doing is really paying off. ... (W)e do a lot of research on Apple and a lot of insights on their suppliers and partners, and some of these are really small companies,” Mr. Sauer said. “It's very helpful to us.”
Another Apple supplier, semiconductor company Skyworks Solutions Inc., has been a great driver in the performance of the small-midcap growth strategy, Mr. Sauer said.
“Here's a company I've known for 20 years,” Mr. Sauer said. “They had a monstrous last 12 months because they gained market share in the iPhone 6 families.”
“They've had over double earnings growth in two years and close to double revenues for two years in June, so their market cap during that period has gone from $3.5 billion up to $18 billion,” Mr. Sauer said. “We've had this in the small portfolio till just recently and we had to graduate it out.”