Over the past 10 years, mid-cap blend funds have beat the S&P 500 by about 4 percent, on average
What constitutes a medium-sized company is hard to define, so it's difficult to make a sweeping generalization about mid-cap blend funds, which invest in mid-cap stocks or in a combination of large-cap and small-cap stocks. "It's not as homogenous of a category as say, large or small cap, because it's sort of a transitional area sometimes," says Dan Culloton, an associate director of fund analysis at Morningstar.
Generally, mid-cap stocks are companies with a market capitalization between $2 and $10 billion. Some mid-caps are essentially small-cap success stories--companies that have grown over time--while others are former large-cap stocks that have fallen out of favor. Mid-cap fund managers may focus specifically on mid-cap stocks, or they may invest in companies of all sizes.
An allocation to smaller companies can help diversify your portfolio and boost its returns over the long term. Over the past 10 years, the average mid-cap blend fund has gained an annualized 6 percent, while the S&P 500 Index has returned just under 2 percent annualized during the same time period.
With that in mind, here are U.S. News's best mid-cap blend funds for the long term:
Westport Fund (WPFRX)
This fund's performance has been decent in up markets as well as downturns. Amid 2008's market plunge, the fund lost 30 percent, 7 percentage points less than the S&P 500. Manager Ed Nicklin runs a fairly concentrated fund that currently contains 46 stocks, a quarter of which are in the industrial materials sector. Its 6 percent turnover ratio--a measure of how often a manager buys or sells securities--means Nicklin holds onto his picks for the long haul. Over the past 10 years, the fund has returned an annualized 8 percent. Its annual fees are 1.31 percent.
Fidelity Low-Priced Stock (FLPSX)
It may sound like a gimmick--investing mostly in stocks that trade below $35 a share--but this strategy has worked for manager Joel Tillinghast, who has led the fund to an annualized gain of 14 percent since its 1989 inception. Given the fund's hefty asset base of more than $33 billion, it can be difficult for Tillinghast to move quickly in and out of smaller stocks. To account for this, he makes very small investments in about 800 stocks of different sizes, although mid-caps account for almost 50 percent of assets. The fund, which charges 0.99 in annual fees, also has a large international weighting, with about a third of its assets invested overseas.
Aston/Optimum Mid Cap (CHTTX)
With a concentrated portfolio of about 40 holdings, this fund can be volatile at times. Its calendar-year returns tend to land in the extremes--either the top or bottom of the category. In 2008, the fund lost 43 percent, performing worse than 75 percent of its peers. But in 2009's upturn, the fund gained 66 percent--almost double the category average. Over the past 10 years, the fund has returned an annualized 10 percent. Its annual fees are 1.2 percent.
FMI Common Stock (FMIMX)
The fund, which is currently closed to new investors, has returned an annualized 11 percent over the past 10 years. Its annual fees are 1.24 percent.
Westport Select Cap (WPSCX)
Like Westport Fund , this fund is concentrated and has a low turnover ratio. It holds a larger share of small caps than its peers (small and micro-cap stocks make up about a quarter of the fund's total assets.) Generally, Westport Select won't lead in rallies, but it does a decent job of protecting against the downside. Currently, the fund has large stakes in healthcare and industrial materials companies. The fund, which carries a 1.15 percent expense ratio, has returned an annualized 7 percent over the past 10 years.
Ariel Appreciation (CAAPX)
At times, the managers of this fund make big sector bets. Recently, almost 30 percent of the fund's assets were invested in financial services companies, including Northern Trust and Janus. The managers take a value-oriented approach to investing by looking for companies they believe are trading at a discount. The fund's 63 percent return in 2009 landed it near the top of its category, but it trailed its peers in 2010, finishing near the bottom of the category with a 20 percent gain. The fund has returned an annualized 8 percent over the past 10 years. Annual fees are 1.18 percent.
Invesco Mid-Cap Core Equity (GTAGX)
The managers of this fund are quick to sell holdings that become overvalued, and they aren't afraid to move assets into cash when they feel opportunities in the market are scarce. A large cash stake (recently, greenbacks made up almost a quarter of the portfolio) and some poor stock selections help explain the fund's underperformance as of late. It may have finished 2010 near the bottom of its category, but the fund's long-term performance is solid: Over the past 10 years, it has returned 7 percent per year, on average. Annual fees are 1.24 percent.
Dreyfus Opportunistic Midcap Value (DMCVX)
Manager David Daglio seeks companies he believes are undervalued or temporarily in distress. Out-of-favor picks like commercial real estate broker CB Richard Ellis Group helped the fund skyrocket in 2009 with a return of more than 60 percent. But the fund lagged in 2010. Daglio says he didn't find many opportunities because he felt the market was overpriced. Over the past 10 years, the fund has returned an annualized 8 percent. Its annual fees are 1.18 percent.
California Investment S&P Mid-Cap Index (SPMIX)
This index fund seeks to replicate the performance of medium-sized U.S. companies as measured by the S&P Mid-Cap 400 Index. Over the past 10 years, the fund has returned an annualized 7 percent. It charges 0.58 percent in annual fees, which is high for an index fund.
Dreyfus Mid-Cap Index (PESPX)
This fund uses a passive, or indexing, strategy to mirror the returns of the S&P Mid-Cap 400 Index. Its 0.50 expense ratio is also rather high for an index fund. Over the past 10 years, the fund has returned an annualized 7 percent.
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