As of December 31st, Informa Investment Solutions calculates the PSN Top Guns – Managers of the Decade. And what a decade it has been! The annualized return of the S&P 500 over the decade was 7.4%- lower than its long-term average but by no means a “lost decade”. However, averages can smooth over a lot of variation. The last ten years contained three distinct market cycles. From January 2004 to October 2007 the markets had a nice run of a cumulative +43.3% following the bear market that inaugurated the new millennium. Trillions of dollars evaporated during the credit crisis between November 2007 and February 2009 and the market was down -50.9% over that stretch. Finally, between March 2009 and December 2013 the market recovered all those losses and was setting all-time highs after gaining an astounding +178.9% off the bottom.
Managers who did well in such a wild environment can plausibly claim to be a “manager for all seasons.” In Large Cap U.S. space Raub Brock Dividend Growth (+12.3%), Wells Capital LC Intrinsic Value (+12.0%) and Aristotle Value Equity (+11.9%) were the top three managers according to PSN Top Guns Manager of the Decade methodology. Moreover, all three outperformed in each of the market cycles mentioned previously.
Over the last decade small cap U.S. stocks performed as expected- better in up markets, worse in down markets. The surest way to make it to the top of PSN’s Top Guns Manager of the Decade list was to outperform in both up and down markets, and that’s exactly what London Company Small Cap Core (+15.8%), Hancock Horizon Small Cap (+14.4%) and Atlanta Capital High Quality Small Cap (+13.7%) did.
Interestingly, over the last ten years developed international markets and large cap U.S. markets had almost identical returns. The annualized return of the MSCI EAFE and the S&P 500 was 7.4% for both indices. The U.S. markets have rebounded from the credit crisis more dramatically than international markets, but from the start of 2004 to mid-2007 the return on overseas markets was more than double that of the S&P 500. At the end of 2013, the two wound up dead-locked. Artisan International Value (+13.6%), MFS International Value (+12.0%), and Johnston International Equity (+11.4%) all outperformed in each market cycle as well as for the decade in aggregate.
Emerging markets lived up to their reputation as a high-risk/high-return asset class over the last decade, with money sloshing in and out of developing markets depending upon macro factors. Aberdeen Emerging Markets (+16.8%), Westwood Global GEMS (+16.7%) and Vontobel (+15.2%) topped PSN’s Manager of the Decade list. While these managers have all outperformed in all three cycles, it has only been recently that large separation has occurred between their performance and the benchmark.
Of course one of the main beneficiaries of interest rates being held at historic lows for half a decade has been investment grade bonds. The Barclays US Aggregate Bond index had an annual return of +4.6% over the decade versus the S&P 500’s return of 7.4%, but at a fraction of equity’s volatility. The Sharpe ratio, which quantifies the return-vs.-risk trade-off, was 0.88 for bonds but only 0.40 for stocks. During the last decade MacKay Shields Core Investment Grade, Ziegler Core Fixed Income, and CS McKee all outperformed the Barclays US Aggregate by an average annualized rate of at least 100 basis points- no mean feat in fixed income land.
Note: all numbers are annualized, unless otherwise noted.
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