Skip to main content
MENU
Subscribe
  • Sign Up Free
  • LOGIN
  • Subscribe
  • Topics
    • Alternatives
    • Consultants
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Face to Face
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Regulation
    • SECURE 2.0
    • Special Reports
    • Washington
    • 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
    • ESG Investing | Industry Brief
    • Innovation in ESG Investing
    • 2023 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • The Plan Sponsor's Guide to Retirement Income
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2023 Defined Contribution East Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Research Center
    • The P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2023 Canadian Pension Risk Strategies
    • 2023 Retirement Income
Breadcrumb
  1. Home
  2. Special Report: Top-Performing Managers
May 17, 2021 12:00 AM

Small-caps dominate in year ended March 31 — Morningstar

Rob Kozlowski
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    David Rose
    Photo: Ryan Jehangir
    Granahan Investment Management's David Rose

    Small-cap strategies dominated the overall top 10 domestic equity rankings for the year ended March 31, according to the latest data from Morningstar Inc.'s separate account/collective investment trust database.

    Among the top 10 strategies, nine were small-cap strategies. Of these nine, six were growth strategies, two were blend and one was value, according to Morningstar categorizations. One strategy fell within Morningstar's health category.

    The overall median return for domestic equities within the Morningstar separate account universe was 63.37% for the year ended March 31, compared to the Russell 3000 index return of 62.5%.

    Tony Thomas, associate director, equity strategies, manager research, at Morningstar Inc., Chicago, said the results for the year ended March 31 reflected a change in the top performers compared with recent quarters.

    Mr. Thomas said that while large-cap growth strategies, particularly with a focus in technology, have dominated the top rankings in recent quarters, "the value side picked up steam, and we saw there's movement into cyclicals like energy, industrial and basic materials."

    "Small-cap stocks really had a nice rally in the first quarter, and that's made them the best performing of all the market cap tiers," Mr. Thomas said.

    He also noted that regional banks have seen some recovery.

    The change in the top rankings from recent quarters is due in large part to technology "cooling down" in the first quarter of this year, Mr. Thomas said. Within Morningstar's categories, technology strategies had the lowest median return at 1.94% for the three months ended March 31, well down from its returns the three previous quarters of 31.71%, 11.82% and 14.58%, respectively.

    For the year ended March 31, the median return for growth strategies was 70.08% in Morningstar's universe, while value strategies returned a median 65.27%. The Russell 3000 Growth index returned 64.3% for the year ended Dec. 31, while the Russell 3000 Value index returned 58.3%.

    The top-performing equity managers
    Overall U.S. equity separate accounts: one year
    RankFundCategoryGross returnNet
    return
    1Morgan Stanley InceptionU.S. SA small growth299.60%296.82%
    2Granahan Small Cap SelectU.S. SA small growth271.02%267.77%
    3DOMO Concentrated All Cap ValueU.S. SA small value262.30%256.73%
    4Granahan SMID SelectU.S. SA small growth252.39%249.22%
    5Anchor Founders Value InstitutionalU.S. SA small growth232.95%232.65%
    6Penn Capital Small to Micro Cap EquityU.S. SA small growth213.58%212.30%
    7Old West All Cap OpportunityU.S. SA small blend192.49%190.08%
    8Next Century Growth Micro Cap growthU.S. SA small growth189.75%188.06%
    9Old West Small/Mid Cap growthU.S. SA small blend186.70%184.43%
    10ARK Genomic RevolutionU.S. SA Health186.43%184.37%
    Overall U.S. equity separate accounts: five years
    RankFundCategoryGross returnNet
    return
    1ARK Next Generation InternetU.S. SA technology54.11%52.97%
    2Morgan Stanley InceptionU.S. SA small growth45.66%44.61%
    3Next Century Growth Micro Cap growthU.S. SA small growth44.83%43.91%
    4Granahan Small Cap Focused GrowthU.S. SA small growth44.59%43.51%
    5Granahan Small Cap SelectU.S. SA small growth44.54%43.19%
    6ARK Disruptive Innovation Full CompositeU.S. SA midcap growth43.28%43.01%
    7Zevenbergen Genea GrowthU.S. SA technology42.93%41.75%
    8Granahan SMID SelectU.S. SA small growth42.27%40.90%
    9ARK Genomic RevolutionU.S. SA health41.32%40.28%
    10ARK Disruptive Innovation Strategy SMAU.S. SA midcap growth40.53%40.21%
    Overall U.S. equity CITs: one year
    RankFundCategoryGross returnNet
    return
    1Hood River Small/Mid Cap Gr CITFounder'sU.S. SA midcap growth122.74%121.64%
    2Jennison U.S. Small Cap Equity 6U.S. SA small growth121.49%
    3Wellington CIF II Select Small Cap GrU.S. SA small growth109.32%
    4American Century US Small Cap Val Eq TrU.S. SA small value110.44%108.66%
    5Brandywine Diversified Sm Cap Select BITU.S. SA small value109.20%107.63%
    6Peregrine Small Cap Value CIT Founder'sU.S. SA small value108.15%106.70%
    7CastleArk Small Company Growth CITU.S. SA midcap growth107.64%106.23%
    8PIMCO StocksPlus Small Collective Tr IIU.S. SA small blend112.37%106.13%
    9LSV U.S. Small Cap Value Equity Tier 7U.S. SA small value105.82%
    10NTCC Small Cap FEBTU.S. SA small blend105.63%
    Overall U.S. equity CITs: five years
    RankFundCategoryGross returnNet
    return
    1T. Rowe Price New Horizons Tr-AU.S. SA midcap growth26.81%
    2BNYM Mellon US Small/Mid Cap Growth Eq 2U.S. SA midcap growth25.91%
    3State St. Nasdaq-100 Indx NL Cl AU.S. SA large growth25.23%
    4AB US Small & Mid Cap Growth CT BU.S. SA midcap growth24.04%
    5Wellington CIF II Growth S2U.S. SA large growth24.35%23.82%
    6Wellington CIF II Select Small Cap GrU.S. SA small growth23.05%
    7Jackson Square SMID-Cap Gr CIT Fd (Cl M)U.S. SA midcap growth23.87%22.94%
    8BlackRock U.S. Fdmtl Lg Cp Growth FU.S. SA large growth22.50%
    9AB US Large Cap Growth CT BU.S. SA large growth21.76%
    10Alger Capital Appreciation Series CF R1U.S. SA large growth22.39%21.60%

    Morgan Stanley Investment Management's Inception strategy was the top-ranked separate account for the year ended March 31, with a gross return of 299.6%.

    Inception is a small-cap growth strategy that "seeks high-quality companies with sustainable competitive advantages and focuses on long-term growth potential rather than short-term events," according to its Morningstar profile. The strategy as of March 31 had 41 holdings.

    The top five holdings, which accounted for 25% of the portfolio, were Skillz Inc., AppFolio Inc., Utz Brands Inc., Cardlytics Inc. and Appian Corp. Other holdings include GameStop Corp. and Redfin Corp.

    Dennis Lynch, New York-based head of Morgan Stanley Investment Management's counterpoint global team, was not available to provide further information.

    Ranked second and fourth were strategies managed by Granahan Investment Management Inc., Waltham, Mass.

    The Small Cap Select and SMID Select strategies posted gross returns of 271.02% and 252.39%, respectively, for the year ended March 31.

    David Rose, chief investment officer and portfolio manager, said in a telephone interview that Granahan is a long-only growth manager that specializes in the small-cap universe.

    "We focus on finding not only the growth companies that everyone knows well and loves, but also finding companies that are more hidden gems in the small-cap universe," Mr. Rose said.

    The strategies maintain a diversification in the types of growth stocks in which they invest, categorizing them as pioneer companies (those with unique, disruptive potential in new markets), core growth companies (those with a consistent growth), and special situations companies (those with improving results, including cyclical growth companies).

    While pioneer and core growth companies, often in technology, were the primary drivers for the first half of 2020, Mr. Rose said special situations companies have emerged as the economy rebounds. They include Kulicke & Soffa Industries Inc., which was the top holding in the strategy as of March 31, according to Morningstar.

    The semiconductor provider has benefited from worldwide shortages and has seen orders pick up dramatically, Mr. Rose said.

    Ranked at No. 3 for the year ended March 31 was DOMO Capital Management LLC, Germantown, Wis.

    Its sole strategy, the Concentrated All Cap Value strategy, had a gross return of 262.3%. It held five stocks as of March 31.

    Justin Dopierala, founder and president, said in a phone interview, "Basically our general philosophy is that increased diversification actually increases risk once you start allocating capital to ideas that are not your best ideas."

    One stock that the strategy held in the past year and sold before its well-publicized trading frenzy earlier this year was video game retailer GameStop Corp., Mr. Dopierala said.

    The stock was an example of what he calls a "perfect example of recency bias" resulting in low valuations.

    "There was too much emphasis (in recent years) that their deteriorating income was due to a shift from physical to digital," he said.

    Mr. Dopierala said they bought shares in GameStop in the low single digits over the course of the last several years, and while the poor performance hurt the strategy's results for a while, they sold their last share in the company in the low 40s.

    Ranked fifth was a value strategy from Anchor Capital Advisors LLC, Boston. The Anchors Founders Value Institutional strategy returned a gross 232.95% for the year ended March 31.

    William P. Rice, CEO, said in a phone interview that the firm, founded by his father nearly 40 years ago, has always adhered to a value philosophy.

    "We have an 11-person investment team and our style, you know, really is to look for undervalued companies and partner with them for the very long term," Mr. Rice said. "We're an ultra-low-turnover manager. Historically our turnover has been around 2% to 5%."

    The Founders Value strategy is the newest for the manager, created four years ago after Mr. Rice and his team realized so many of the companies in which they invested were still led by their founders.

    "We build relationships with these management teams and really find the best of the best and take concentrated positions for the long term and what's so great about it is, generally speaking, the largest shareholder of these companies in almost all cases is the founder," Mr. Rice said.

    "They're very, very much aligned with us as shareholders, which we think is so powerful." Mr. Rice also noted these kinds of companies benefit from being risk-averse, avoiding debt and keeping net cash on their balance sheets.

    "This is their money. This is their life. They've got all their eggs in one basket," Mr. Rice said.

    One primary driver for the success of the strategy was Celsius Holdings Inc., a fitness drink company in which the strategy was invested for four years whose fundamentals were excellent, Mr. Rice said.

    "It was growing like crazy but the stock wouldn't budge, and we kept our head down," Mr. Rice said. "All of a sudden last year it got noticed and people realized what they'd been doing for four years."

    For the five years ended Dec. 31, seven of the top 10 strategies were all growth strategies. Two other strategies fell within Morningstar's technology category, and one fell within its health category.

    One of those technology strategies was ARK Investment Management LLC's Next Generation Internet strategy, which had an annualized gross return of 54.11% in the five years ended March 31. The New York-based manager had three other strategies in the top 10 for the five years ended March 31: its Disruptive Innovation Full Composite, Genomic Revolution and Disruptive Innovation Strategy SMA ranked sixth, ninth and 10th, respectively, with respective annualized gross returns of 43.28%, 41.32% and 40.53%.

    Morgan Stanley's Inception strategy ranked second for the five years ended March 31 with an annualized gross return of 45.66%, followed by Next Century Growth Investors LLC's Microcap Growth Strategy, which returned an annualized gross 44.83%, and then Granahan's Small Cap Focused Growth and Small Cap Select strategies with annualized gross returns of 44.59% and 44.54%, respectively.

    The median five-year annualized return for domestic growth strategies in Morningstar's domestic equity separate account universe was 19.39%, and the median among all domestic equity strategies was 14.97%. The Russell 3000 Growth index returned an annualized 20.9% for the five years ended March 31, and the Russell 3000 index returned an annualized 16.6%.

    Within the collective investment trust universe, eight of the top 10 domestic equity CITs were small-cap strategies and two were midcap strategies for the year ended March 31. Of the top 10, there were four growth strategies, four value strategies and two blended strategies.

    Leading all trusts was Hood River Capital Management LLC's small/midcap growth CIT founder's class, which returned a net 121.64% for the year ended March 31.

    The rest of the top five CITs for the year ended March 31 were: Jennison Associates LLC's U.S. small-cap equity trust 6 class, with a net return of 121.49%; Wellington Management Group LLP's CIF II select small-cap growth CIT, a net 109.32%; American Century Investment Services Inc.'s U.S. small-cap value equity CIT, 108.7%; and Brandywine Global Investment Management LLC's diversified small-cap select BIT trust, 107.63%.

    The median return of domestic equity collective investment trusts in Morningstar's universe for the year ended March 31 was 65.96%.

    For the five years ended March 31, T. Rowe Price Group Inc.'s New Horizons Class A CIT led all trusts with an annualized net return of 26.81%, followed by the BNY Mellon U.S. small/midcap growth equity CIT, with a net 25.91%.

    The rest of the top five CITs for the five years ended March 31 were: State Street Global Advisors' Nasdaq 100 Index Class A CIT, with an annualized net return of 25.23%; AllianceBernstein LP's U.S. small & midcap growth equity CIT class B, an annualized net 24.04%; and Wellington Management's CIF II growth CIT Class S2, 23.82%.

    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 May 4.

    Related Articles
    COVID-19 remains a near-term financial risk – Fed report
    SEC looking at market volatility and rules, Gensler tells House panel
    Recommended for You
    Photo of Federated Hermes' Christopher McGinley
    Bond strategies rebound in Q1 after difficult 2022
    Photo of Model Capital Management's Roman Chuyan
    Top strategies used a tactical approach for success over past year
    Albert Chu
    Equity energy and natural resources strategies take spotlight in 2022
    OCIO: Steady Hand at the Wheel
    Sponsored Content: OCIO: Steady Hand at the Wheel

    Reader Poll

    May 1, 2023
     
    SEE MORE POLLS >
    Sponsored
    White Papers
    Middle market credit: We’re gonna need a bigger boat
    Alternative Credit: Differences and Opportunities in CLOs and Credit Risk Shari…
    Fixed Income is Attractive, but Beware of "Fake" Yield
    Counting on a Crisis: A Catalyst for Investment Innovation?
    A Strategic Allocator's Guide to Productivity and Profits
    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 Custom Content
    • 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
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Face to Face
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Regulation
      • SECURE 2.0
      • Special Reports
      • Washington
      • 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
      • ESG Investing | Industry Brief
      • Innovation in ESG Investing
      • 2023 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • The Plan Sponsor's Guide to Retirement Income
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2023 Defined Contribution East Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Research Center
      • The P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2023 Canadian Pension Risk Strategies
      • 2023 Retirement Income