Winners Come in All Sizes
It's easy for investors to get wrapped up in the never-ending fight between large-cap and small-cap funds, much like boxing fans have trouble naming the reigning flyweight, featherweight and welterweight champions. From prizefighting to fund-picking, it's just easier to focus on one or two classes.
Unfortunately, that narrow style of thinking causes investors to rule out a number of mutual funds simply because of their size.
To illustrate how good funds come in all shapes and sizes, here are three off-the-rack funds worth trying on: a mega-cap, a micro-cap and a mid-cap. (And for you boxing fans, I'll list the current fly, feather and welterweight champions at the end of the article, just in case you forgot.)
For a nation that prides itself on its ability to "super-size" most anything, it seems almost unpatriotic to say there are only seven mega-cap stocks listed on U.S. exchanges. Nevertheless, that's the number that qualifies as being the biggest of the big, a lucky seven that includes British Petroleum (BP), Citigroup (C), ExxonMobil (XOM), General Electric (GE), Microsoft (MSFT), Pfizer (PFE) and Wal-Mart (WMT).John C. Thompson owns all of these giants, save the ADR British Petroleum, in the $1.4 billion (THPGX) Thompson Plumb Growth fund. And he's not troubled by holding them in large stakes, either. In a fund of 57 stocks, Microsoft makes up almost 6% of the portfolio and Pfizer close to 5%. GE and ExxonMobil each weigh in at close to 2% of the fund's asset base. In total, the top 10 stocks in the mega-cap fund account for close to 50% of its assets, a fairly concentrated portfolio even if the stocks bear household names. But even though the fund seems top heavy, Thompson's track record demonstrates that he can skillfully navigate the land of the giants. The average market capitalization for the stocks in the portfolio is on par with the S&P 500 at a healthy $45 billion, yet the fund has returned 17.94% annually over the last 10 years, more than 6% better than the S&P 500 over the same period. The fund has beaten the index by 6.32% and 12.49% over the past three and five years.
|Sizing Things Up
Fund Sizes by Capitalization
|Fund Classification||Market Capitalization|
|Mega-Cap||Greater than $200 billion|
|Large-Cap||$10 billion-$200 billion|
|Mid-Cap||$2 billion-$10 billion|
|Small-Cap||$300 million-$2 billion|
|Micro-Cap||$50 million-$300 million|
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