The top return for the year ended Sept. 30 was Emerald Advisers Inc.'s diversified small-cap growth strategy, with a gross return of 18.53%.
The portfolio team invests in the “top growth companies” in the small-cap universe, with an emphasis on companies that are “underfollowed and underresearched,” said Joseph W. Garner, director of research and portfolio manager at Leola, Pa.-based Emerald Asset Management.
Three sectors drove much of the strategy's performance over the last year — health care, financials and technology, he said.
In health care, Bluebird Bio Inc., a biotech company focused on gene-based therapy, produced strong gains. In financials, a top gainer was LendingTree LLC. The financial search engine is the classic company that is not as followed or researched by analysts, Mr. Garner said. A top performer in technology was cyber security solutions provider Imperva Inc.
The strategy benefits from the “breadth and depth” of its 14-person research team, Mr. Garner added. Collectively, the team was able to attend more than 2,000 company meetings this past year.
In the second spot was Polen Capital Management LLC's focus growth strategy with a gross return of 18.11%.
The portfolio team targets competitively advantaged large-cap companies with strong balance sheets and strong growth expansion. About 20 companies are held at a time, said Dan Davidowitz, chief investment officer and portfolio manager at the Boca Raton, Fla.-based money manager.
Among the portfolio's top producers over the past year were Starbucks Corp., Nike Inc., Allergan PLC, Visa Inc. and O'Reilly Automotive Inc.
On Nike and Starbucks, Mr. Davidowitz said: “These companies have a unique value proposition for consumers and a steadiness to business that stands up to any environment.”
Ranking third with a gross return of 17.94% was Rice Hall James & Associates LLC's microcap opportunities strategy, which invests in companies with a market cap of $1 billion or less.
Lou M. Holtz, a Pasadena, Calif.-based portfolio manager and analyst at the firm, described the investment strategy as “very much” buy and hold. “We stay away from short-term, one-hit wonders that can't sustain their business longer term,” Mr. Holtz said.
Broadly speaking, microcap is a “wonderful area for investors,” Mr. Holtz said. The asset class is less “scrutinized” and portfolio managers can find “great opportunities that the market may be ignoring.”
Health-care stocks provided “decent” gains for the portfolio over the year, he said. Two winners there were Abiomed Inc. and NPS Pharmaceuticals Inc. The portfolio also benefited from a minimal exposure to the energy sector — 0.15% vs. a 2.39% exposure to energy for the Russell Microcap Growth index.
In fourth place was Driehaus Capital Management LLC's microcap growth strategy, with a gross return of 17.58%. The portfolio team looks for companies undergoing positive change that hopefully will beat growth expectations going forward. The strategy's average-weighted market cap was $764 million as of Oct. 31.
On an absolute-return basis, the best-performing sectors for the portfolio over the past year were technology and health care, said Jeffery James, portfolio manager at the Chicago-based money manager.
Top gainers for the portfolio included LendingTree and Paycom Software Inc., which provides cloud-based human resources technology and payroll services.
Michael Buck, assistant portfolio manager, added that having a “nimble and flexible” investment strategy allows the team to capture new ideas.
The portfolio's holding period ranges from six months to three years.
Mr. Buck said he continues to see emerging opportunities in the energy sector, including Flotek Industries Inc., an oil field services company.
And even though health care has sold off in the last few months, there are still strong growth stories — in therapeutics and medical devices, for instance, Mr. Buck said.