Poor mid-caps. Or is it poor you if you ignore this oft-overlooked group?
Mid-caps, companies with market capitalizations between $1.5 billion and $12 billion, typically offer less volatility than small-caps and greater growth potential than large-caps. Still, they're often the
of the stock world -- not as zany as Bobby (small-caps) and lacking Greg's groovy maturity (large-caps). Of course, this short-sighted view can cost you money at times, like now for instance.
This year, rate fears and the cooling of tech fever have kept small- and large-cap stock returns somewhat in check, while typical mid-cap sectors such as health care, utilities and energy have kept mid-caps afloat. Since Jan. 1, the
S&P Mid-Cap Index
is up 11.5%, trouncing the large-cap
0.6% return and the small-cap
modest 1.5% rise. (For more on what's driving up mid-caps, see this
So, this week's Saturday Screen zeroes in on mid-cap stock funds. To make our list, a fund had to beat its average mid-cap peer over the past three years and year to date. It also had to have a manager who'd been in place for at least three years, below-average expenses, and be open to new investors. Here's our top 10, ranked by their return since Jan. 1.
"This is definitely a wide range of funds," says
fund analyst Scott Cooley. On the list you'll find high-octane growth funds and value funds trolling for bargains. You'll also find some that are just barely outside of small- or large-cap categories.
First things first, ignore broker-sold, top-spot holder
Parnassus, Cooley says.
"Parnassus is not appealing. It hops all over the place and its performance has been erratic. The fund has misfired, so it's pretty tough to fit into a portfolio," he says.
From 1997 to now, portfolio manager Jerome Dodson has changed the fund's style from small-cap blend to mid-cap growth to mid-cap blend, and now it's back to mid-cap growth, according to Morningstar. Last year, his tech position hit 70%, so you know this chameleon isn't afraid of taking big bets.
Aggressive investors looking for a fund that will focus on mid-cap growth stocks probably should look at no-load
Dresdner RCM Mid Cap, broker-sold
Putnam Vista, and broker-sold
Alger Mid Cap Growth.
All three funds have stayed ahead of their peers by focusing on bigger and pricier stocks. Each fund's average price-to-earnings ratio is above 40, compared with 29.6 for the average mid-cap fund, according to Morningstar.
The Putnam and Dresdner funds both have more than 50% weightings in large-caps and the tech sector. Alger Mid Cap co-managers David Alger and Ronald Tartaro had about one-third of their fund committed to large-caps and tech stocks at the end of the first quarter.
Another potentially enticing growth option is no-load
Janus Enterprise. The fund didn't make the cut because its 3.2% year-to-date return lags behind its average peer. But if you're looking for a high-octane approach, you might want to remember this fund, run by Jim Goff since its 1992 inception. Last year, the fund rode tech stocks to a 122% return.
Now that many of Janus' popular stock funds are closed, however, the fund's asset level is worth keeping an eye on. Today, it has more than $7 billion, more than seven times bigger than the average mid-cap growth fund.
For those interested in value, look at broker-sold
Lord Abbett Mid-Cap Value and no-load
Dreyfus Midcap Value. The two funds' average P/E ratios are both below average, at 24.7 and 19.9, respectively. Both have decent stakes in energy stocks, a good place to be this year with rising prices and demand buoying the recently sleepy sector.
Looking for something in-between? Check out broker-sold
MFS Mid-Cap Growth, which draws on a deep bench of analysts like the other noted growth funds, but takes a slightly lower octane approach. The fund sports an above-average 34.9 P/E ratio, but at the end of the first quarter, its sector overweightings are energy and health care, not technology.
'Tweeners might also consider no-load mid-cap blend
Legg Mason Value, run by highly regarded stock picker Bill Miller and Lisa Rapuano. The fund missed our cut because of its weak performance since Jan. 1.
Many believe indexing doesn't work for small- and mid-caps because stocks graduating to the land of large-caps boost turnover and taxable distributions. But if you're a diehard indexer, you might look at our No. 10, no-load
California Investment S&P Mid Cap. The fund tracks the
S&P Mid-Cap Index
and has a modest 0.40% expense ratio.
But if you really want to own a mid-cap index fund, you should go with one run by Vanguard's undisputed index guru, Gus Sauter, says Cooley. That's because Vanguard's index funds are typically the cheapest you'll find outside of exchange-traded funds, and Sauter has skillfully used futures contracts to actually beat benchmarks in the past.
Vanguard Mid Capitalization Index fund, which also tracks the S&P Mid-Cap Index, didn't qualify for our list because it's only 2 years old. It has lagged behind the California Investment fund over the past year, but its 0.26% expense ratio and its managers' long-term track record make it tough to turn down.
Ian McDonald owns shares of