Amid the ocean of mid-cap stocks out there, it takes some experience to know the best spots to fish for value.
Mid-cap value-fund managers typically focus on the more than 800 stocks with market capitalizations ranging from $1.5 billion to $9 billion. They hunt for shares they think are undervalued relative to their expected earnings growth or their peers' valuations. This bargain-hunting strategy appears pragmatic, but it's tough to execute since many cheap stocks simply get cheaper. That's where an experienced manager, who's seen his or her share of value traps, can be a big boost.
is looking for funds with solid performance and a manager or managers who've been at the helm for at least five years. We've already looked at
big-cap value funds,
big-cap growth funds and
tech/telecom funds. Today we're zeroing in on the mid-cap value-fund crowd, which is uncharacteristically eye-catching this year.
It's been a good year for mid-caps and value stocks after an extended blue period where tech and growth funds ruled the roost. This year these funds can't get much closer to the sweet spot. Given their price-sensitive approach, these funds typically have modest tech-stock stakes. In fact, the average mid-cap value fund has just a 12% tech position, less than half that of the
, according to
That's helped this year as tech and telecom stocks led the market down. The average mid-cap value fund is up more than 12% in a year when few funds or indices are in the black.
While these funds aren't typically core holdings, their performance this year shows why diversification works. Translation: If you've been strictly buying growth funds over the past few years, you now know what risk means. In filtering the more than 130-fund category, we screened for those funds that beat their average peer since Jan. 1 and over the last three- and five-year periods with the same manager.
Here's a top-10 list of those funds that made the cut, ranked by their year-to-date returns.
We've also screened these funds portfolios to find their top picks, but let's look at the funds first.
One name that jumps out is the no-load
Weitz Partners Value fund, which has value maven Wally Weitz at the helm and a solid track record. Unfortunately, it also has a steep $100,000 minimum investment. That said, you might check out the no-load
Weitz Value fund, which is also run by Weitz.
Weitz has run the Value fund since its 1986 inception. He isn't shy about sector bets -- more than half the fund's assets were in financial stocks on Sept. 30 -- but it's hard to argue with his results. The fund beats the S&P 500 and its average peer over the last one-, three-, five- and 10-year periods, according to Morningstar. The fund only missed our list because its year-to-date return didn't crack the top 10.
Although Weitz and most of the other managers with funds on this list don't typically hold many tech stocks, Peter Higgins, who's managed the
Dreyfus Mid Cap Value fund since 1995, has kept them in the fold. At the end of September, some 27% of the fund's money was in tech stocks like
. Such an aggressive streak however hasn't hurt the no-load fund's performance. It beats at least 80% of its peers over the last one-, three- and five-year periods.
The chart-topping, broker-sold
Lord Abbett Mid Cap Value fund traces a less techy course. The fund's success this year is primarily due to its taste for utilities and energy stocks, which fared well this year. Edward von der Linde has run the fund since 1988, and Howard Hansen joined him as a co-manager in 1997. The fund beats the S&P 500 and at 85% of its peers over the last one-, three- and five-year periods.
Though value funds are typically equated with sleepy, measured strategies, they can make big bets too. One of the best examples of value funds' aggressive streak might be the no-load
Longleaf Partners fund, which recently reopened to new investors. Mason Hawkins and Staley Cates have co-managed the fund since 1987 and 1994, respectively, with John Buford joining them last year.
The trio typically only buys a stock when it is deemed to be trading at 40% below its estimated private market value. They only hold about 20 or 25 stocks and they're not afraid to let a stock appreciate above a 10% weighting in the portfolio. This approach has worked for long-term investors. The fund's 20.1% 10-year annualized return beats the S&P 500 and 94% of its peers.
Another concentrated fund that's worth a look is the no-load
Oakmark Select fund, which didn't make our list because it isn't five years old yet. Lead manager Bill Nygren focuses on just 20 or so stocks, often with a bent toward the financial sector. Though this concentrated approach can lead to higher volatility, Nygren has put up solid numbers.
He's run the fund since its 1996 inception, Henry Berghoef became a co-manager this year, and the fund's 18.2% three-year annualized return beat the S&P 500 and 93% of the fund's peers. This fund didn't make our list because it lacks a five-year record. For details on Nygren's style, check out this recent
10 Questions interview.
If this whole value thing seems pretty subjective, a look at the cumulative top-10 holdings of our 10 leading funds bears that out. On this eclectic list, you'll find chipmaker
, trash titan
and two hotel chains,
Editorial assistant Dan Bernstein contributed to this article.