U.S. News is releasing a series of stories highlighting top-rated mutual funds according to various categories. These funds have performed well over the long term, are rated highly among the industry's analysts, and have low minimum investments, making them accessible to all investors—big or small. This is the eighth piece in a series of stories highlighting 10 categories that make up U.S. News's 100 Best Mutual Funds for the Long Term.
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 (symbol 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.