Five investment styles made up the top 10 overall equity rankings for the 12-month period ended June 30, according to Morningstar Inc.'s separately managed account/collective investment
trust database.
Six of the top 10 overall strategies were large-cap, comprising two blended, two growth and two value strategies. Small-cap growth and real estate each had two managers in the overall top 10.
The median return for all separately managed stock portfolios in the Morningstar database was 0.18% for the period, while the Russell 3000 Index returned 3.84%.
The heterogeneous makeup of this top 10 stands in contrast to those in the 12-month period ended March 31, when eight of the 10 were large-cap-growth managers, according to Diana Scott, product development manager for separate accounts at Morningstar.
Because of the wide variety of investment styles represented in the top 10, the primary reason that these strategies made the top of the list is simply that “they produced marginally better returns than others,” she said.
“To make a long story short, "What's going on?' is the question that everyone wants the answer to. There is no clear-cut answer,” Ms. Scott said.
The top performer for the 12-month period ended June 30 was Granahan Investment Management Inc.'s Small-Cap Focused Growth portfolio with a gross return of 19.57%.
The strategy is one of four used by the boutique small-cap-growth firm.
“We think it's a very attractive asset class,” said managing director Andrew Beja.
The focused growth product, which hit its five-year mark in July, consists of what Mr. Beja said are “companies we'd take to a desert island for five to seven years.”
The firm selects stocks best able to sustain earnings growth of at least 15% over that time period — stocks that have both “attractive risk/
reward and ... very good expected returns, and we're very disciplined about both,” he said.
“We look at companies that can grow year in, year out at that 15%,” Mr. Beja said. “We're very disciplined on the risk/reward, particularly on the downside of that equation, and it can work particularly well when people are chasing a sector or factor that's not part of our discipline,” he added.
THE REST OF THE BEST
Groesbeck Investment Management Corp. was the second-best-performing manager in the overall separate-account-equity universe for the period. Its growth strategy returned a gross 19.14%.
The large-cap-growth strategy's focus is on companies with estimated annual earnings growth of at least 10%, according to its Morningstar profile.
The strategy features a quantitative analysis based on market cap and financial parameters, and a “bottom-up fundamental analysis of top-ranked companies,” the Morningstar profile states.
Logan Capital Management Inc.'s Concentrated Value strategy came in third, with a 12-month gross return of 18.84% as of June 30.
The strategy concentrates on 10 to 12 large-cap stocks, according to managing director Marvin Kline, a co-manager of the portfolio.
“We have been managing this portfolio since 1996 ... We're in the 17th year and [have] outperformed the Russell 1000 for the majority of those years, so this isn't a fluke,” Mr. Kline said.
The strategy uses what he calls a “quantamental” process — quantitative and fundamental — looking for “very strong companies with very strong cash flow.”
All the portfolio's stocks had a positive return for the 12-month period, Mr. Kline said.
Among the strongest-performing stocks in the portfolio were Philip Morris USA Inc., Kimberly-Clark Corp. and Intel Corp. — all with one-year returns of more than 20%. The worst performer was Royal Dutch Shell PLC at 2%.
“We ignore the news, and I think one of the good things about being at Logan is that they don't question our strategy,” Mr. Kline said. “We deviate from the market at times quite a bit. We can ignore the short-term swings.”
Rounding out the top five managers for the period were Kopp Investment Advisors LLC's AccruHealth strategy, at No. 4 with a gross return of 18.26%, and Analytic Investors LLC's U.S. low-volatility strategy with a gross return of 16.39%.
Rob Kozlowski is a reporter for sibling publication Pensions & Investments.
