6 Active Mid-Cap Funds to Buy (or Keep)
These Morningstar Medalists are among our favorites.
A version of this article was published in the August 2015 issue of Morningstar FundInvestor. Download a complimentary copy of FundInvestor here.
Some say mid-caps are the sweet spot of the stock market. (Especially if they happen to be marketing mid-cap funds.) They say that you have more-professional management and less volatility than small caps yet greater room to grow than large caps. It's something of a sweet spot for mutual funds, too, as you'll find some outstanding managers there.
Let's take a look at how a few of our top-rated actively managed mid-blend funds have fared of late. Some are closed to new investors, so hold on if you already invest or put them on a watchlist should they open in the future. And don't forget about great passive options like Vanguard Mid-Cap Index (VIMAX) and Vanguard Extended Market Index (VEXAX).
Longleaf Partners Small-Cap (LLSCX)
Top 22%, trailing five years
How does a fund named "small cap" end up in the mid-cap Morningstar Category? This fund buys small-cap stocks but allows them to grow into mid-caps (provided the managers pick the right stocks, of course). This closed fund has a Morningstar Analyst Rating of Gold and has been the jewel in Longleaf's crown, as it has had an array of quirky winners from Level 3 Communications (LVLT) to Vail Resorts (MTN).
Ariel Fund (ARGFX)
Top 35%, trailing five years
This Bronze-rated fund was clobbered in 2008 but came back strong in the ensuing years. It is on pace to record its sixth top-quartile calendar-year performance in the past seven. It hasn't changed much since 2008, except to drill deeper on a company's debt burden, but the market decided it liked some of its dull but steady names after all. Jones Lang LaSalle (JLL), Newell Rubbermaid (NWL), Mohawk Industries (MHK), and CBRE Group (CBG) have been in the fund since before 2008 and have each produced more than 20% annualized returns during the past five years.
First Eagle Fund of America (FEAFX)
Top 27%, trailing five years
This Silver-rated fund has handled a generational shift pretty smoothly. David Cohen has dialed down his contributions here, while Eric Stone has ramped up since being named manager in 2013. Harold Levy remains at the fund, as he has since its 1987 inception. The fund seeks corporate changes that will drive stock prices higher and has found winners in the likes of Seagate Technology (STX), Wyndham Worldwide (WYN), and Sealed Air (SEE). The fund's A shares (FEFAX) are open, the Y shares are not.
Aston/Fairpointe Mid Cap (CHTTX)
Top 61%, trailing five years
This closed Silver-rated fund has posted a middling five-year return. Favoring tech and basic materials over health care explains the sluggish results. Thyra Zerhusen and team look for niche businesses with growing market share and little debt. Biotech stocks rarely meet their criteria, which explains the small stake in health-care stocks. But the strategy has been a winning formula over the long haul; the fund's in the top 2% of mid-blend funds for the trailing 10 years.
Vanguard Capital Value (VCVLX)
Top 75%, trailing five years
This fund had been doing better than average, but the slump in energy really hurt--the fund has 14% of assets in energy versus 5% for the category. The fund plies a very aggressive kind of value investing thanks to Peter Higgins, who runs his half of the portfolio independently from David Palmer of Wellington Management and is a deep-value investor. Palmer is a less-daring classic-value investor, but that still doesn't make this a tame fund.
FMI Common Stock (FMIMX)
Top 61%, trailing five years
This closed, Gold-rated fund has a weaker five-year number and a great 10-year mark. It has a focused portfolio that makes for a bumpy ride. Cyclical stocks like Compass Minerals International (CMP) and Armstrong World Industries (AWI) have held it back. Pat English and team look for solid management at companies with low valuations. That has worked nicely over the long haul but has not clicked of late.
Russel Kinnel does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.