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Finding Multicap Funds using Morningstar Data

How to locate funds that invest across market-cap spectrums.

Occasionally, our readers ask whether Morningstar offers all-cap categories dedicated to funds that invest across the market-cap spectrum. Such funds, variously called multicap, all-cap, or go-anywhere funds, don't have any specialized categories to call home in Morningstar's system, for key reasons.

 

First, consider the distinction between the terms "multicap" and "go-anywhere." The former implies steady investments in firms of different market-cap sizes. The latter implies that a fund manager can choose to invest heavily in small caps one year and large caps the next, based on where the best opportunities happen to be. Clearly, these are different approaches. For instance, large-blend-oriented  Vanguard Capital Opportunity (VHCOX) has long held significant stakes in large, mid-, and small caps without shifting their weightings much among these market-cap bands. On the hand, another large-blend fund,  Quaker Aggressive Growth (QUAGX), has traveled all over the map: In 1999, 23% of its stock holdings were small cap, dropping to 4% in 2002, then rising to 36% today. The objectives of such funds are likely to be similar, as they are here, making the distinction between multicap and go-anywhere funds tough to determine by mandate. Thus we prefer a holdings-based approach, which provides a more-accurate picture of a fund's leanings.

 

That's not to say that you can't find multicap funds using Morningstar's data. But before we show you how, those looking for a dependable, cheap all-cap fund have two great one-stop shopping options.  Vanguard Total Stock Market Index (VTSMX) and  TIAA-CREF Equity (TCEIX) are both cheap index funds tied to total-market indexes, the Wilshire 5000 Index and Russell 3000 Index, respectively. They therefore automatically hold a market weighting in large, mid-, and small caps. Vanguard's offering, for instance, has a 70% large-, 20% mid-, and 10% small-cap weighting that mirrors Morningstar's cap breakdowns. So for a low 0.2% price tag, you have sound one-fund exposure to the U.S. stock market, which is difficult to top.

 

For fans of active management, it's a bit tricky to locate go-anywhere funds, but using Morningstar's  Premium Fund Screener to locate funds that are currently invested in different market-cap bands is pretty simple. You do first have to decide whether you want a fund that focuses on growth, value, or a blend of stocks, however. As such, this example showcases blend funds, with notes on how to adapt the screen.

 

To start, as usual, we'll ask to see distinct portfolios only--just the oldest share class for each mutual fund. Next, we'll fill out three lines asking for at least a 10% weighting in large-cap blend, mid-cap blend, and small-cap blend stocks. (Note: These lines are the ones to modify. If you were looking for a growth fund, you could ask for large growth, mid-growth, and small growth.) Finally, to make sure we're getting funds that have a bit of history, we'll demand that a fund have at least three years of returns (using 3 Year Return not = Not Available).

 

To see this search, click  here. As of June 4, 2004, it yields 24 funds.

 

Since we didn't screen for quality, we see funds of varying success. Four standouts worth noting are:

 

 The Fairholme Fund (FAIRX)

This fund's bold approach features significant contrarian sector bets. While it stakes about one fourth of its assets each to large caps and small caps, it's appropriately considered a mid-blend fund. The fund currently has over half its assets in mid-caps and over three fourths of its assets in core stocks.

 

 Marsico 21st Century (MXXIX)

This fund clearly leans toward large caps and growth stocks, as its large-growth category status suggests. But manager Corydon Gilchrist has used a wide-ranging mandate to great effect; the fund has outperformed the large-growth category average by nearly 10 percentage points per year in its four-year history. Despite being concentrated in only 38 stocks, he recently managed a 43% large-cap, 36% mid-cap, and 21% small-cap split.

 

 Third Avenue Value (TAVFX)

Manager Marty Whitman has a reputation for being a small-stock cheapskate, and he's trained his successor Curtis Jensen in that vein. While he normally buys small, inexpensive fare, he'll also purchase larger stocks and is willing to hold stocks as they become core and even growth stocks. As a result, this fund is even more widely dispersed over all areas of the style box than the two previously mentioned funds. Investors considering this fund should take note of its the lumpy returns it drives, especially when considered next to its peers.

 

 Tweedy Browne Global Value (TBGVX)

It's worth noting that foreign funds can be multicap players as well. While this fund properly belongs in the Foreign Small/Mid-Value category, it's a solid, core international fund. In fact, it currently has a 40% stake in large caps but also a 25% stake in small caps. And while the fund definitely leans heavily toward value stocks, it often maintains a good slug of growth stocks--22% as of the March 31, 2004, portfolio. Note that Tweedy, Browne hedges its currency risk, so its short-term returns often diverge, for better or worse, from category peers.