Growth strategies — particularly large-cap growth — continue to dominate the top-performing domestic equity strategies on Morningstar Inc.'s separate account/collective investment trust database, with seven of the 10 best performing U.S. equity funds for the year ended Sept. 30 falling under the category.
Morningstar's data show that five of the top 10 strategies were large-cap growth and two were midcap growth. Two other strategies fell within Morningstar's technology category — both of which topped the list — and one fell within the health category.
For the year ended June 30, seven of the top 10 strategies also were growth strategies.
For the year ended Sept. 30, the median return for domestic growth strategies was 22.76% in Morningstar's universe, while the Russell 3000 Growth index returned 36.12%. The overall median return for domestic equities within the Morningstar separate account universe was 5.28% for the year ended Sept. 30, compared to the Russell 3000 index return of 14.99%.
"Large-cap growth has performed exceptionally well over the past four years," said Tony Thomas, senior manager research analyst for equity strategies at Morningstar, noting that the Russell 1000 Growth index has beaten the S&P 500 13 out of the last 15 quarters. "It's astonishing."
Although growth strategies had been performing well for some time, the coronavirus pandemic accelerated trends that made the top overall firms perform exceptionally well, with all top 10 strategies experiencing triple-digit gross gains for the 12 months ended Sept. 30.
During the economic shutdown caused by the coronavirus pandemic starting in March, many investors have been asking where they can find growth. The answer? Innovative technologies, innovative health-care treatments, and innovative communications tools.
"Tesla was up 98% in the third quarter," Mr. Thomas said, citing an example of a technology stock that performed exceptionally well. "It's in four of the top five equity portfolios."
The Morningstar analyst also pointed out that many of the big winners this time around had already been in the right spots in the market before the pandemic — it wasn't a case of managers chasing hot stocks.
"The pandemic has favored spots that these investors were already investing in," Mr. Thomas said. "Zevenbergen have been big on Tesla for a long time."
Indeed, Anthony Zackery, portfolio manager at Zevenbergen Capital Investments LLC, whose Genea growth strategy topped the list with a gross return of 125.72% for the 12 months ended Sept. 30, told Pensions & Investments that Tesla was the "most significant contributor to performance."
Mr. Zackery confirmed Mr. Thomas' points that the pandemic caused many sectors in which Zevenbergen has invested for years to thrive.
"We did not expect the pandemic, nor did we expect this health crisis would cause a recession," Mr. Zackery said. "But we also didn't expect it would lead to enthusiasm for high-tech companies investing in durable trends. We've been investing in these companies for years."
Zevenbergen Capital has significant exposure to digital and cloud-based technology, which experienced increased adoption in the health-care, entertainment, retail and education sectors.
In addition to Tesla, other strong performers in Zevenbergen's growth strategy included e-commerce provider Shopify Inc., technology company Nvidia Corp. and online real estate database firm Zillow Group Inc.
Zevenbergen's growth equity strategy ranked fifth on the list, returning a gross 113.91% for the year ended Sept. 30. The firm's Genea growth strategy also ranked second for the list of top performers for the five years ended Sept. 30, returning a gross 37.02%.
ARK Investment Management LLC had both the second- and third-ranked domestic equity strategies for the year ended Sept. 30.
Ranked second was the ARK Next Generation Internet strategy, which returned a gross 124.7%, while ARK's Genomic Revolution strategy came in third, returning a gross 123.74%.