The top-performing domestic equity strategy for the year ended Sept. 30 was Mercury Investment Group's demographic growth strategy, which posted a gross return of 63.18%.
Frank B. Goodman III, co-founder of the firm, said they are demographic-themed investors.
Goodman says the manager uses live birth rates and has noted that the largest generation in the history of the U.S. is between the ages of 15 and 25, which features those born in 2008, the nation's No. 1 all-time year in live births.
Since people with growing families generally tend to move, Goodman said the strategy has benefited significantly from holdings in builders of multifamily homes, specifically on the West Coast and in Texas, where the distribution of live births in 2008 was higher than in other parts of the country.
Goodman also noted that the strategy has benefited from investments in travel, stemming from the growing number of baby boomers entering retirement.
"Retired people at this point in history want experiences, so we went heavy into Booking, Expedia and Marriott, and those have done very good for us," he said.
"Despite all the doom and gloom, the baby boomers are quite prepared for retirement," said Goodman, "and have quite a bit of money, and that's why we felt comfortable with going with the vacation stocks because the disposable income is there."
Ranked second for the year ended Sept. 30 was Kayne Anderson Rudnick Investment Management's small-cap quality select strategy, which posted a gross return of 54.05%.
It was the third straight quarter the manager landed in the top five for one-year trailing returns.
For the year ended June 30, the strategy was the top overall performer among domestic equity strategies, with a gross return of 71.06%.
Todd Beiley, portfolio manager and senior research analyst, was not available for an interview. For the August special report, he said in an interview at the time that the small-cap select strategy represents a subset of "best ideas" within the manager's overall small-cap strategy, containing no more than six to 12 names.
Beiley said in August that he and his team seeks opportunities with two elements that come together: companies with a very secure competitive advantage, and the most attractive stock prices.
One standout Beiley cited at the time was Dream Finders Homes Inc., a home builder that arranges contracts with land ownership options and only purchases the land when they've made sales.
Donald Smith & Co.'s microcap value equity strategy ranked third for the year ended Sept. 30, with a gross return of 50.76%. The strategy ranked seventh in the previous top performing managers report with a gross return of 48.52% for the year ended June 30.
Richard Greenberg, CEO and co-chief investment officer, could not be immediately reached for an interview. In an August interview, he said the manager has benefited from sticking to its traditional deep value investing approach, even outperforming the S&P 500 during the last 10 to 15 years that have been well-known as a difficult environment for value investors.
As with its other strategies, the microcap portfolio is very concentrated with about 25 to 30 holdings, Greenberg said.
In the year ended June 30, Greenberg cited a large investment in home builders as a driver of outperformance. While many were bearish on these companies last year, Mr. Greenberg said the research team determined that earnings could drop significantly and were only coming up with about a 10% downside in book value.
Home sales surged, however, and Mr. Greenberg said that group saw some of their stocks return in excess of 100% over that period.
According to Morningstar's most recent comprehensive report of the strategy, home builder stocks were the largest holdings as of Sept. 30: Beazer Homes USA Inc., making up about 6.6% of the strategy, and M/I Homes Inc., 6.5%.
Ranked fourth was Global Value Investment Corp.'s MIAM concentrated equity value strategy, which returned a gross 48.9% for the year ended Sept. 30. The strategy had ranked sixth in the previous quarter with a gross return of 48.54% for the year ended June 30.
J.P. Geygan, Milwaukee-based senior vice president and chief operating officer, said in a phone interview that the firm identifies and invests in mispriced securities for long periods and increases value by actively engaging with senior management over the holding period.
The strategy is concentrated and currently has 19 holdings, said Geygan.
"Many of those names we've held for several years, and their corporate strategies are starting to bear results," he said. One standout holding he cited is CORE Molding Technologies Inc., a molding company based in Columbus, Ohio, that has traditionally served the Class A trucking industry. Mr. Geygan said the company has benefited greatly from a new CEO who has created significant value over the five years the strategy has held the stock.
Geygan is also enthused about a newer holding in the strategy, footwear manufacturer Wolverine Worldwide, "actually one of the few household names in our portfolio, or quasi-household names."
He noted the company's board of directors has been working successfully to right the company's ship after some "strategic missteps," and the direction seems to be a positive one that has resulted in the beginning of a rise in the stock price.
"We're quite specific," said Geygan. "We demand a lot of the people who run the companies we invest in. It's true partial ownership in an operating entity, not just as a piece of paper, and I think that mindset has served us well."
Ranked fifth was Neuberger Berman's global metaverse strategy, which posted a gross return of 48.69% for the year ended Sept. 30.
Yan Taw "YT" Boon, Hong Kong-based managing director and head of thematic – Asia, was not available for an interview. According to Morningstar's comprehensive report of the strategy, there were 50 global technology-related holdings in the strategy, the largest of which were NVIDIA Corp., Meta Platforms Inc. and Adobe Inc., representing a combined 13% of the portfolio.
Five-year rankings a mixed bag
For the five years ended Sept. 30, the top 10 list consisted of a wide-ranging mix of strategies.
Among the domestic equity separate accounts with the highest annualized gross returns for the period, four were small-cap strategies — two value, one growth and one blend — while two were large-cap strategies (both growth), two were equity energy, one was midcap growth and one was technology.
The median annualized return among all domestic equity strategies in Morningstar's universe for the five years ended Sept. 30 was 7.37%, compared with the Russell 3000 index return of 9.1%.
Also for the five years ended Sept. 30, the median annualized return among domestic growth equity strategies and domestic value equity strategies were 8.39% and 6.84%, respectively. The Russell 3000 Growth index and Russell 3000 Value index returned 11.7% and 6%, respectively, during that period.
The top performer for that period for the second quarter in a row was Baron Capital Management, with its focused growth strategy returning an annualized gross 22.08% for the five years ended Sept. 30.
The rest of the top five was Donald Smith & Co.'s small-cap value equity strategy, with an annualized gross return of 19.51%; Harvey Partners' small-cap opportunity strategy, at 19.03%; Baron Capital's select strategy, at 16.73%; and Donald Smith & Co.'s microcap value equity strategy, at 16.66%.