Boston-based Model Capital Management LLC was the best-performing equity manager with its tactical allocation strategy delivering a gross one-year return of 45.26%.
Mr. Welch said that the strategy mixes some broad market exchange-traded funds — such as the Vanguard Value ETF and the iShares Core S&P 500 ETF — with a bond portfolio.
Roman Chuyan, founder, president and CIO at MCM, said that the tactical allocation strategy allocates to some indexes, the same way an S&P 500 ETF would, while shorting other indexes like the Nasdaq at different periods in time. The strategy also can implement exposures to defensives like cash and fixed income.
Mr. Chuyan said that the firm uses a computer-based regression analysis to weigh 29 economic factors on broad valuations of the stock market like the S&P 500. From there, the model is able to give a forward-looking forecast of how the index will perform over the next six months. The firm then makes decisions based on what type of returns are forecasted as well as a short-term risk model to protect itself against market corrections.
Mr. Chuyan says that the majority of their returns for the year ended Sept. 30 came from within 2022 itself. The strategy shorted broad market indexes for the first half of the year and was able to capitalize on a rally in July and August.
"Markets are volatile, especially this year," he said. "The strategy is designed to do well in this type of market."
Miller/Howard Investments Inc., based out of Woodstock, N.Y., was second on the list of domestic equity managers with its North American Energy strategy posting a gross one-year return of 32.58%.
Mr. Welch said that the strategy had a 90% exposure to energy, which makes its standing on the list not that surprising. Miller/Howard was in first place the last two quarters.
"We're not looking to hit 40 home runs and strike out 250 times a year," said Michael Roomberg, portfolio manager at Miller/Howard Investments. "We want companies that can survive when times are bad and thrive when times are good."
Two holdings that the strategy took advantage of to fuel its returns were Marathon Petroleum Corp. and Philips 66 for its growth potential next year, according to Mr. Roomberg.
"Marathon is a diversified refiner that also has a strong recurring revenue from its midstream business, the company is well managed, and has been very proactive in returning capital to shareholders and has benefited greatly from the blowout in refinery crack spreads during the year," he said. Crack spreads refers to the difference between the price of crude oil and the price of refined products such as gasoline.
But the strategy also has a focus on ESG investing. Mr. Roomberg says that it's a misconception to assume that fossil fuel investing and ESG are incompatible.
"Governance is probably the single biggest factor that has separated investors from energy company profits in recent decades," he said.
An ESG theme that Miller/Howard has focused on, according to Mr. Roomberg, is the way that fossil fuel executives are compensated so that there can be a better focus on return on investment capital and improving per-share metrics.
Still, he said that there has not been enough investment into the energy sector. Prior to 2016, he said that there was over $600 billion invested annually compared to $300 billion now. This, in his opinion, has not been enough to offset declines in legacy oil fields' ability to meet demands.
Boston-based Newton Investment Management North America LLC's global natural resources strategy was the third best-performing equity strategy, yielding a gross one-year return of 29.68%.
"My opinion is that we're at the beginning of a commodity cycle," said Albert Chu, portfolio manager and global natural resources and research analyst at Newton. "In general, commodities' demand, particularly agriculture and even oil, holds fairly well even in various bear markets. In general, we eat more, drive more and consume more."
Mr. Chu said that the strategy's investments fall into three categories: hydrocarbon, mining and agriculture. Its largest holdings include fertilizer company CF Industries Holdings Inc., Occidental Petroleum and Devon Energy Corp.
"We're fairly flexible in investing across the supply chain," he said. "Even within energy we can invest in the upstream, the actual owner of the oil or the services company that enables them to produce the oil, or the midstream, the pipelines, or the refinery downstream."
Morningstar's Mr. Welch said that the investments Newton was able to make in metals and minings allowed it to achieve its outperformance, due to strong performance in those two sectors, as well as its 50% stake in energy, with Occidental leading that effort.
Orleans Capital Management, based out of Mandeville, La., came in at fourth place with its energy opportunities strategy returning 19.73%.
For the year ending Sept. 30, its holdings included Devon Energy, Schlumberger Ltd. and liquid natural gas producer Cheniere Energy Inc.
"(We) drill down on a micro level, to find the best balance sheets, best companies, best management teams," said John Crain, research analyst at Orleans Capital. "That's where we allocate our client's money."
While most of the strategy consists of traditional energy companies, he said it has small holdings in clean energy companies and roughly 20% of its holdings are in companies that might delve into traditional oil and gas but also are investing in the transition to cleaner forms of energy.
"This year, we've kind of been overweight oil service companies. Historically, after the first part of an energy bull market rally … we're increasing (investment) as activity increases," Mr. Crain said. He added that the oil service space is generally underinvested, in part due to the increasing cost of borrowing money.
Peak Capital Management LLC, based out of Greenwich Village, Colo., came in fifth place with its dividend equity strategy, classified as large-cap value, returning a gross 17.32%.
"It's a fundamental bottom-up model that uses a top-down overlay to identify opportunity," said Brian Lockhart, founder, CEO and CIO of Peak Capital Management. "(That's) every description of every strategy out there, but it's actually true."
Peak Capital takes high-conviction positions based on research and has a bottom-up approach to picking stocks. However, he said that the position sizing tends to be very quant-driven, based on a combination of risk contribution, dividend, yield contribution, and overall increase in potential enterprise valuation that the firm calculates internally.
The firm also overweights sectors that it sees as attractive by looking at its forecast for the projected macroeconomic landscape, identifies what historically has done well, and then overallocates to those sectors.
"That's why we're significantly overweight, compared to the S&P 500 benchmark on things like energy and health care," Mr. Lockhart said. "Six to nine months ago, we identified that those are two sectors that ought to outperform in the macro environment."
He said the health-care holdings that allowed it to outperform were biotechnology company Amgen Inc., biopharmaceutical company AbbVie Inc. and Cardinal Health Inc. In the energy sector, Mr. Lockhart said he has been a fan of energy transfer for some time. Some of the firm's energy holdings were petroleum refining company Valero Energy Corp. and energy infrastructure company Kinder Morgan Inc.
Mr. Lockhart attributed the strategy's outperformance to the firm's willingness to take concentrated positions in those areas.
