Daily Screen: Leading Mid-Cap Value Funds

With stocks coming off a couple of shaky quarters and in the throes of painful earnings warnings, it's a good time to look at funds that hunt bargains and at the stocks they like best.

So this Friday Daily Screen turns to the mid-cap value fund category. Value investors are typically finicky types who scour the market's trash bins, looking for good companies whose stocks are trading at low prices. This approach generally entails lower risk than go-go growth investors who are usually willing to pay steep prices for techie market darlings with fat growth rates -- essentially swinging for the seats.

That said, it's not easy. Over the past couple of years investors have loved growth/tech stocks and value fund managers have watched many of their cheapest picks get cheaper.

But lately a large number of tech stocks have cooled, and the worm has turned for value types. Mid-cap value funds narrowly trail their mid-cap growth peers so far this year, but their 6.8% return in the third quarter more than doubled that of their growthy competitors. Given these funds' solid performance in a tough quarter for tech stocks, investors with tech-heavy portfolios might give them a look.

As usual, we've screened the category for funds that beat their average peer over the past one- and three-year periods, according to Morningstar. The first chart lists the top-10 funds, ranked by one-year return. The second chart, listing the 10 stocks with the biggest weightings in those top-10 funds, peeks under the winning funds' hood to see where they placed their bets.

These managers go their own way, and there's little consensus among their top picks. It seems value is in the eye of the beholder. No stock is owned by more than five of the leading funds, and it's an eclectic list with plenty of big-caps, led by financial services shop Aetna(AET) and semiconductor concern Applied Materials(AMAT).

That said, these funds do lean toward cheap stocks. The winning funds' average price-to-earnings ratio is 21.9, compared to 26 for the S&P 500 . And, on average, they've put more of their money in classic value sectors like financials, than in tech stocks.

Leading Mid-Cap Value Funds These funds are beating their average peers over the past 1- and 3-year periods.
Fund	1-Year Return	3-Year Annualized
(DMCVX)Dreyfus Mid Cap Value	37.8%	12.6%
(LAVLX)Lord Abbett Mid-Cap Value	36.5	11.5
(SACPX)Salomon Brothers Capital	34.2	20.6
Hotchkis & Wiley Mid-Cap	33.6	9.9
(PQNAX)PIMCO Renaissance	29.7	13.4
(PJIAX)Prudential Jennison Equity Opportunities	29.4	13.1
(OFALX)Olstein Financial Alert	28.8	20.5
(MAVFX)Matrix Advisors Value	26.2	12.7
(MUHLX)Muhlenkamp	25.9	10.2
(OGDIX)One Group Mid Cap Value	25.2	8.3
Avg. Mid-Cap Value Fund	8.6	7
S&P 500	12.5	15.5
Source: Morningstar. Performance figures through Oct. 4.

Under the Hood The stocks with the biggest weighting in the combined portfolios of the above funds.
Stock	Weighting in Top-10 Funds	Number of Top-10 Funds Owning the Stock
Aetna(AET)	1.1%	3
Applied Materials(AMAT)	1	1
St. Jude Medical(STJ)	0.9	2
ACE(ACL)	0.9	3
Computer Associates(CA)	0.8	4
Arrow Electronics(ARW)	0.7	4
Morgan Stanley Dean Witter(MWD)	0.7	1
Citigroup(C)	0.7	2
IMC Global(IGL)	0.7	5
R & B Falcon(FLC)	0.7	3
Source: Morningstar. Holdings as of most recent portfolio report.

>To order reprints of this article, click here: Reprints