Big Hasn’t Been the Best for Fund Investors

Big Hasn’t Been the Best for Fund Investors

Accordingly, the top three mutual-fund managers in The Wall Street Journal’s Winners’ Circle quarterly ranking of fund managers, and many of the runners-up, earned their laurels by investing in smaller stocks and by emphasizing value. (Small stocks are generally defined as those with market capitalizations at $2 billion or $3 billion and less.) Each of the trio of top performers has found a different way to capture part of the gains from the economic changes brought on by the pandemic and lockdowns. No 1: Elena Khoziaeva, Bridgeway Small-Cap Value, up 108.1% for the 12 months.

Photo: Bridgeway Capital Management Capturing first place this time in the Winners’ Circle ranking—which tracks actively managed U.S.-stock mutual funds for the past 12 months—was Bridgeway Small-Cap Value fund (BRSVX), with a return of 108.1% from a year ago through Sept. 30. The fund, run by Bridgeway Capital Management in Houston, was the No. 2 finisher the previous quarter.

Like other Bridgeway funds, this portfolio isn’t characteristic of those that most investors view as being actively managed. Elena Khoziaeva, head of U.S. equity, relies on data to identify investments that offer a combination of value, improving quality and some degree of price momentum. “It’s all about the rules,” she says.

A different world

What does a post-pandemic universe look like?

“We don’t think the market has sorted it all out yet,” says the No. 2 manager in this quarter’s ranking, C.T. Fitzpatrick, founder and chief investment officer of Vulcan Value Partners in Birmingham, Ala. “It’s going to be a different world post-Covid.”

Mr. Fitzpatrick and his team are hunting for smaller stocks that they believe will benefit from or won’t be hurt by post-pandemic trends. The strategy already is paying off for their Vulcan Value Partners Small Cap Fund (VVPSX), which gained 105.3% for the 12 months. No. 2: C.T. Fitzpatrick, Vulcan Value Partners Small Cap, up 105.3%.

Photo: Liesa Cole Photography “Trends that have been in place for five years or more suddenly got compressed” as the pace of change accelerated, Mr. Fitzpatrick says. Companies that the fund had owned or had been monitoring “saw their revenue growth accelerate and their margins and free cash flow improve significantly.” In turbulent or uncertain markets, valuations didn’t always keep pace. That created opportunities for the Vulcan Value team to snap up new positions at unprecedented discounts to fair value, and build their existing holdings.

The 1,380 actively managed stock funds that qualify for inclusion in the Winners’ Circle competition recorded an average gain of 24.4% for the 12 months, based on data from Morningstar . That is why it was impressive that the top two performers each managed gains of 100% or more, and No. 3 fund Kinetics Small Cap Opportunities Fund (KSCOX) rose 93.9%.

The value of value

Each of the three invest in “value” stocks—stocks that are perceived to be low-price or beaten down—or at least have a value tilt, in the case of Kinetics. Over the past 12 months, the average return of small-cap value funds was 66%. While funds focusing on small-cap “growth” stocks—those powered by corporate-earnings potential—also beat the broad universe of U.S.-stock funds, their average return of 39% failed to measure up to the small-cap value funds.

The Journal doesn’t recommend that readers view the Winners’ Circle funds as a “buy” list. Some of these funds may not be suitable investments, for myriad reasons. Some have high fees, are reserved for institutions or closed to new investors; others have concentrated portfolios of only 20 or so stocks or a history of volatile returns. Still, the way that these outperforming managers react to risks and opportunities and identify emerging trends can provide ideas on how to set about building portfolios. Score at the Quarter

Stock funds logged a negative quarter, breaking a five-quarter streak of gains. Average total return for U.S. diversified funds.






–0.4–10–20–302018’19’20’21 20%100–0.3–0.4–10–20–302018’19’20’21Source: Refinitiv LipperThe Journal doesn’t include all mutual funds in these quarterly surveys. To qualify, a fund must be actively managed, so there aren’t any index funds or exchange-traded funds. Most passively managed quantitative funds are excluded from these rankings as well.A fund must also invest exclusively or principally in U.S. stocks, possess a record of at least three years and have at least $50 million in assets. The manager or team must own stocks, not a portfolio of options or other derivative securities. Funds that use leverage to boost returns or minimize losses don’t make the cut. Finally, the rankings exclude sector funds in favor of funds with broader mandates.The managers of each of […]

source Big Hasn’t Been the Best for Fund Investors

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