Defined Benefit
Defined Contribution
Insurance Assets
Nonprofit

Why It Was a Tough 4Q21 for Large Cap Growth Managers

Why It Was a Rough 4Q21 for Large Cap Growth Managers
clock
1 min 54 sec

With rising case counts stemming from the Omicron variant, and concerns about interest rates and inflation, volatility in the markets spiked in 4Q21.

For large cap growth investment managers, pro-cyclical positioning generally hurt portfolios given those fears. In addition, the growth and quality trade reversed at the end of the quarter when Fed Chairman Jerome Powell provided tapering guidance, indicating it could move ahead at its next meeting, setting off a spike in rates and volatility.

It has been difficult to be an active manager in recent time periods. More than 90% of large cap growth managers underperformed the benchmark for the quarter, and 85% for the year, according to Lipper. This echoes Callan data, which found that only 15% of the managers in our Callan Large Cap Growth Peer Group topped the Russell 1000 Growth Index in the quarter, and only 8% of the managers in our Callan Large Cap Growth Mutual Fund Peer Group. For the year the figures were better: 25% and 16%, respectively.

large cap growth managers
Headwinds for Large Cap Growth Managers

From their peaks during the quarter, stocks with the highest growth factor declined 34% while low-volatility (i.e., defensive) stocks rose 2%. The causes of the high growth stock sell-off were multifaceted: rich starting valuations for many high-growth companies, inflation levels pointing to higher discount rates for future cash flows, and stronger near-term economic activity that reduced the relative scarcity of growth.

The top 10 stocks in the Russell 1000 Growth Index accounted for about half of its market capitalization and contributed 65% of 4Q21 returns and 60% of full-year returns. The top five contributors represented nearly 35% of the market cap for the full year and 52% of the return. Given that concentration, many large cap growth managers were hurt by what they did not own, specifically, Apple and Tesla.

Other detractors included a sell-off in shares of Twilio after disappointing 3Q earnings, a drop in Zillow after it closed its home-buying business, and weakness in Chinese internet stocks amid that country’s regulatory crackdown.

Another headwind for large cap growth managers stemmed from a cyclical rotation out of mid cap stocks starting in October, as supply chain and labor market issues heated up, which led to a sell-off in that segment. Large cap growth managers that had a lower market cap bias may have been impacted.

Posted by

Share
Share on facebook
Share on twitter
Share on linkedin
Related Posts
Public Markets

Global Stocks Rebound in 4Q; Fixed Income Suffers Dreadful Year

Kristin Bradbury
Kristin Bradbury analyzes global equity and fixed income markets in 4Q22 and for the full year.
Operations

Unlocking the Secrets of the 'Data Vault'

Bo Abesamis
Bo Abesamis describes the Callan "Data Vault," a repository where data is collected, cleansed, aggregated, and curated.
ESG

Green Financing in Residential Real Estate

Aaron Quach
Christine Mays and Aaron Quach explain green financing and how it can help investment managers obtain more favorable financing terms.
Public Markets

There Was Really No Place to Hide in World Markets

Kristin Bradbury
Kristin Bradbury analyzes global equities, fixed income, and real assets markets in 3Q22, where there really was no place to hide.
Public Markets

Few Bright Spots as Markets Continue to Drop

Kristin Bradbury
Kristin Bradbury recaps how the global markets performed in 2Q22.
Private Markets

Alignment of Interests: Best Practices to Make Sure Investors and Their Managers Are in Sync

Jan Mende
Jan Mende discusses how institutional investors can make sure their interests are aligned with their private markets investment managers.
Macro Trends

Unprecedented Territory—and the Inherent Limits of Diversification

Jay Kloepfer
Jay Kloepfer discusses the concurrent declines in the equities and fixed income markets at the beginning of 2022.
Public Markets

Equity, Fixed Income Indices Fall; Commodities a Rare Bright Spot

Kristin Bradbury
Kristin Bradbury assesses global stock, bond, and real assets markets in 1Q22.
Macro Trends

Can U.S. Equities Outrun Inflation?

Adam Lozinski
Adam Lozinski and Gordon Weightman analyze the long-term performance of U.S. equities compared to inflation.
Macro Trends

U.S. Stocks Thrive While Global ex-U.S. Shares Lag; U.S. Fixed Income Flat

Kristin Bradbury
Kristin Bradbury analyzes 4Q21 performance for U.S. and global equities and fixed income.

Callan Family Office

You are now leaving Callan LLC’s website and going to Callan Family Office’s website. Callan Family Office is not affiliated with Callan LLC.  Callan LLC has licensed the Callan® trademark to Callan Family Office for use in providing investment advisory services to ultra-high net worth clients, family foundations, and endowments. Callan Family Office and Callan LLC are independent, unaffiliated investment advisory firms separately registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940.

Callan LLC is not responsible for the services and content on Callan Family Office’s website. Inclusion of this link does not constitute or imply an endorsement, sponsorship, or recommendation by Callan LLC of their website, or its contents, and Callan LLC is not responsible or liable for your use of it. When visiting their website, you are subject to Callan Family Office’s terms of use and privacy policies.