Skip to main content
MENU
Subscribe
  • Sign Up Free
  • LOGIN
  • Subscribe
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Face to Face
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2023 Defined Contribution East
    • 2023 ESG Investing
Breadcrumb
  1. Home
  2. Special Report: Top-Performing Managers
November 29, 2021 12:00 AM

Small-cap value strategies make big comeback

James Comtois
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Dave Ribbens

    DOMO Capital Management's Dave Ribbens

    Updated with correction.

    Small-cap strategies continue to top the list of the best-performing domestic equity strategies, making up nine of the top 10 strategies for the year ended Sept. 30, according to the latest data from Morningstar Inc.'s separate account/collective investment trust database.

    All of the top 10 strategies recorded triple-digit gross returns. Of the top 10, six were blend strategies, two were value, one was growth and one was financial, according to Morningstar categorizations.

    This marks the third consecutive quarter that small-cap strategies dominated the top 10 rankings. For the year ended June 30 all 10 top domestic equity strategies were within Morningstar's small-cap category.

    The overall median return for domestic equities within Morningstar's separate account universe was 32.77% for the year ended Sept. 30, compared to the Russell 3000 index return of 31.9%.

    Related Article
    High yield, TIPS strategies find success amid flat bond markets

    Tony Thomas, senior manager research analyst for equity strategies at Morningstar in Chicago, said in a phone interview that at "this point last year, it (small-cap value) was probably the ugliest segment of the market. Now, it's the hottest sector."

    In fact, from 2017 through 2020, small-cap value "was the weakest segment," Mr. Thomas said. "They had a long period of significant underperformance."

    For the year ended Sept. 30, the Russell 2000 index returned 47.6%, while the Russell 2000 Value index returned 63.9% during that same period.

    Mr. Thomas explained that a number of these small-cap value strategies "have significant exposure to energy, and with improving oil prices and improving oil demand, that's benefited these managers." He added that "meme stocks" like GameStop "have (also) helped some of these strategies."

    Small-cap value stocks include a "heavily cyclical segment of the market," with "a lot of financials and small retailers in there; areas that were badly beaten up last year," the Morningstar analyst added.

    "If there was a segment in the market that was cheaper last year, it was in small value," Mr. Thomas said. "So, investors are seeing an opportunity."

    For the year ended Sept. 30, the median return for overall blend strategies was 48.28% in Morningstar's universe, while value strategies returned a median 41.42%. The Russell 3000 Value index returned 36.6%. Growth strategies, as measured by Morningstar, returned a median 31.41%.

    For the second consecutive quarter, DOMO Capital Management LLC topped the list of the best-performing domestic equity managers. For the year ended Sept. 30, the Germantown, Wis.-based manager's Concentrated All Cap Value strategy returned a gross 136.24%.

    The top-performing equity managers for Q3 2021
    Overall U.S. equity separate accounts: one year
    RankFundCategoryGross returnNet
    return
    1DOMO Concentrated All Cap ValueU.S. SA small-cap value136.24%132.04%
    2Old West Small CapU.S. SA small-cap blend115.35%113.65%
    3Vulcan Value Partners Small Cap StraU.S. SA small-cap blend109.22%107.57%
    4Old West All Cap OpportunityU.S. SA small-cap blend107.70%105.82%
    5Kennedy Bank SectorU.S. SA financial106.13%104.02%
    6Kennedy Micro Cap Emerging GrowthU.S. SA small-cap blend105.86%103.93%
    7Bridgeway Small Cap ValueU.S. SA small-cap value104.87%103.59%
    8Penn Capital Small to Micro Cap EquityU.S. SA small-cap growth104.05%103.10%
    9Tieton Small Cap ValueU.S. SA small-cap blend100.96%99.50%
    10Fuller & Thaler Micro-Cap CoreU.S. SA small-cap blend100.33%97.95%
    Overall U.S. equity separate accounts: five years
    RankFundCategoryGross returnNet
    return
    1ARK Next Generation InternetU.S. SA technology45.76%44.69%
    2Next Century Growth Micro Cap GrowthU.S. SA small-cap growth42.03%41.10%
    3Zevenbergen Genea GrowthU.S. SA technology40.63%39.52%
    4Morgan Stanley InceptionU.S. SA small-cap growth40.38%39.35%
    5Granahan Small Cap SelectU.S. SA small-cap growth39.38%38.07%
    6Granahan Small Cap Focused GrowthU.S. SA small-cap growth39.11%38.00%
    7Granahan SMID SelectU.S. SA small-cap growth37.98%36.65%
    8Morgan Stanley DiscoveryU.S. SA midcap growth37.35%36.26%
    9Morgan Stanley InsightU.S. SA large-cap growth36.94%35.60%
    10ARK Disruptive Innovation Full Comp.U.S. SA midcap growth36.90%36.63%
    Overall U.S. equity CITs: one year
    RankFundCategoryGross returnNet
    return
    1American Century US Small Cap Val Eq TrU.S. SA small-cap value71.89%70.44%
    2LSV U.S. Small Cap Value Equity Tier 7U.S. SA small-cap value65.79%
    3LSV US Small Cap Value Equity Tier 2U.S. SA small-cap value65.51%
    4Victory Integrity Small/Mid Cap Val CF CU.S. SA midcap value64.70%
    5Peregrine Small Cap Value CIT Founder'sU.S. SA small-cap value64.52%
    6AB US Small & Mid Cap Value CT BU.S. SA small-cap value63.96%
    7BlackRock Russell 2000 Value FU.S. SA small-cap value63.73%
    8State St. Russell Sm Cp Val Indx NL Cl CU.S. SA small-cap value63.60%
    9Brandywine Diversified Sm Cap Select BITU.S. SA small-cap value64.10%62.84%
    10Wellington CIF II Small Cap Value S1U.S. SA small-cap blend62.55%61.38%
    Overall U.S. equity CITs: five years
    RankFundCategoryGross returnNet
    return
    1T. Rowe Price New Horizons Tr-AU.S. SA midcap growth27.36%
    2State St. Nasdaq-100 Index NL Cl AU.S. SA large-cap growth25.95%
    3Wellington CIF II Growth S2U.S. SA large-cap growth25.55%25.03%
    4BNYM Newton US Small/Mid Cap Gr Eq Inst'lU.S. SA midcap growth24.62%
    5AB US Small & Mid Cap Growth CT BU.S. SA midcap growth23.73%
    6AB US Large Cap Growth CT BU.S. SA large-cap growth23.70%
    7BlackRock U.S. Fdmtl Lg Cp Growth FU.S. SA large-cap growth23.50%
    8TCW Concentrated Core AU.S. SA large-cap growth23.37%
    9Nuveen Winslow Large Cap Growth Cl IU.S. SA large-cap growth23.80%23.10%
    10BlackRock Russell 1000 Growth FU.S. SA large-cap growth22.88%

    David Ribbens, a partner at DOMO Capital, said that with this strategy, the firm seeks to retain a concentrated portfolio.

    "We're opportunistic buyers," he said. "There's been a bit of a rotation to value. We've seen over this past year more investor interest in beaten-up names that don't deserve their low valuations."

    United Natural Foods Inc., a Providence, R.I.-based natural and organic food company, was a big contributor to the strategy's performance, he said. DOMO Capital sold its position within the food supplier and redeployed the proceeds.

    "COVID turned out to be a tailwind for groceries, since people stopped going to restaurants," Mr. Ribbens said.

    Old West Investment Management LLC's Small Cap and All Cap Opportunity strategies ranked second and fourth on the list, respectively, returning a gross 115.35% and 107.7%, respectively.

    Joseph Boskovich Jr., co-founder and partner of the Los Angeles-based manager, attributed the strategies' strong performances to metals and the uranium mining space, both of which saw a huge demand "because of the clean energy revolution."

    Mr. Boskovich said: "We built a position in uranium mining three-and-a-half, four years ago, which has performed phenomenally,"

    Uranium mining and nuclear fuel stocks that did particularly well in Old West's strategies included Cameco Corp., Saskatoon, Saskatchewan; Energy Fuels Inc., Lakewood, Colo.; NexGen Energy Ltd., Vancouver; and Centrus Energy Corp., Bethesda, Md.

    The firm also identified companies led by management teams "that have great records of capital allocation and buy their own stock, so the management (teams) have more to gain or lose than from compensation," Mr. Boskovich added.

    Those holdings that performed well during this period included WildBrain Ltd., a Halifax-based media, production and brand licensing company; Fulgent Genetics Inc., a Temple City, Calif.-based genetics testing firm; Zedge Inc., a New York-based content distribution firm; and St. Joe Co., a Watersound, Fla.-based land development company.

    Vulcan Value Partners LLC, Birmingham, Ala., had the third-ranked strategy for the year ended Sept. 30. Its Small Cap Equity strategy had a gross return of 109.22% for the period.

    C.T. Fitzpatrick, founder, CEO and chief investment officer of Vulcan Value Partners, said the firm seeks "companies that have inherently stable values over the long term, with strong balance sheets."

    "It's all security selection," Mr. Fitzpatrick said. "We didn't overweight to this industry or that. We're bottom-up people. The building blocks are the businesses themselves."

    He said the top two contributors to the strategy's success were Upstart Holdings Inc., a San Mateo, Calif.-based consumer lending company, which was "really discounted compared to its potential"; and Park Hotels & Resorts Inc., a Tysons, Va.-based REIT, which Vulcan bought at "an enormous discount."

    And while these firms may not seem to be alike in obvious ways, the Vulcan chief executive explained that they do share some essential attributes.

    "They have stable values, a lot of free cash flow, sustainable competitive advantages and are managed by really good people," Mr. Fitzpatrick said.

    The manager also owns several real estate service companies, that provide sales, leasing and advisory services and property management, that have done well, since they don't own assets and can pivot, such as Cushman & Wakefield PLC, Jones Lang LaSalle Inc., and Colliers International Group PLC.
    "They took a cyclical hit during the pandemic, but we thought people would continue to need apartments and warehouses, and that over the long term these businesses could skim the cream off the top of the real estate sector," he said.

    The firm also sold positions in the following three companies: office furniture manufacturer Knoll Inc., laser manufacturer Coherent Inc., and British aerospace company Meggitt PLC.

    "We bought Knoll, Coherent and Meggitt at 50 cents on the dollar or better, then sold (at) 100 cents on the dollar or better," Mr. Fitzpatrick. Kennedy Capital Management Inc. had strategies that came in fifth and sixth on the list for the one-year period. The St. Louis-based manager's Bank Sector strategy returned a gross 106.13% for the year ended Sept. 30, while its Micro Cap Emerging Growth strategy returned a gross 105.86%.

    Although Donald Cobin, president, chairman and CEO of Kennedy Capital Management, declined to point out any specific holdings within the strategies that performed well, he explained that the firm's bank sector strategy tends "to follow underfollowed, unknown banks that are more on the micro and small end of the spectrum."

    The strategy also looks for "banks moving into specialized services, so the payment space, credit cards and banking as a service," Mr. Cobin said in an interview.

    For the Micro Cap strategy, the sectors that outperformed during the 12-month period included health care, technology, industrials, materials, financial services and real estate, he said.

    "Both of these strategies tend to follow underfollowed opportunities, so they're not beholden to cyclicity or strategic shifts in the market," Mr. Cobin said.

    In the same interview, Anil Thomas, managing director and head of consultant relations and institutional sales at Kennedy Capital Management, added: "These are not trading-oriented products; we don't go in and out of investments quarter to quarter. So, if there's short-term volatility, we can maintain our conviction."

    Mr. Thomas from Kennedy Capital later said in an email that the firm was looking to change the Micro Cap Emerging Growth strategy's name to Micro Cap Opportunities by year-end "to avoid benchmark confusion."

    Related Articles
    Consultants benefit from client returns
    Exchange-traded products pass $1 trillion in net inflows
    Growth still on top over five years

    For the five years ended Sept. 30, eight of the top 10 strategies were growth-oriented. Five of those strategies fell within Morningstar's small-cap category, while two were categorized as midcap and one as large cap. Two of the top 10 strategies fell within Morningstar's technology category.

    Topping the list was one of the two technology strategies: New York-based ARK Investment Management LLC's Next Generation Internet strategy, which had an annualized gross return of 45.76% for the five years ended Sept. 30.

    Next Century Growth Investors LLC's Micro Cap Growth strategy ranked second for the five years ended Sept. 30 with an annualized gross return of 42.03%, and Zevenbergen Capital Investments LLC's Genea growth strategy ranked third with an annualized gross return of 40.63%.

    The median five-year annualized return for domestic growth strategies in Morningstar's domestic equity separate account universe was 19.9%, and the median among all domestic equity strategies was 14.54%. The Russell 3000 Growth index returned an annualized 22.3% for the five years ended Sept. 30, and the Russell 3000 index returned an annualized 16.8%.

    Within the collective investment trust universe for the year ended Sept. 30, nine of the top 10 domestic equity CITs were small-cap strategies and one was a midcap strategy. Of the top 10, nine were value strategies and one was a blend strategy.

    Leading all trusts was American Century Investment Services Inc.'s U.S. Small-Cap Value Equity CIT with a net return of 70.44% for the year ended Sept. 30.

    The median return of domestic equity collective investment trusts in Morningstar's universe for the year ended Sept. 30 was 33.57%.

    For the five years ended Sept. 30, T. Rowe Price Group Inc.'s New Horizons Class A CIT led all trusts with an annualized net return of 27.36%, followed by State Street Global Advisors' Nasdaq 100 Index Class A CIT, with an annualized net 25.95%.

    All data for Pensions & Investments' top-performing managers report are provided from Morningstar's global separate account/collective investment trust database. The data for the rankings on which this story is based were pulled Nov. 4.

    Getty Images
    Recommended for You
    Arif Husain
    Ultrashort bond strategies rise to the top in brutal year for fixed-income strategies
    Michael Roomberg
    Energy and natural resources strategies continue to fuel equity manager outperformance
    The Institutional Investor's Guide to ESG Investing
    Sponsored Content: The Institutional Investor's Guide to ESG Investing

    Reader Poll

    January 25, 2023
    SEE MORE POLLS >
    Sponsored
    White Papers
    Show Me the Income: Discovering plan sponsor and participant preferences for cr…
    The Future of Infrastructure: Building a Better Tomorrow
    Outlook 2023: Opportunity in a volatile world
    Research for Institutional Money Management
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    December 12, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Face to Face
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2023 Defined Contribution East
      • 2023 ESG Investing