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Mid-Cap Core Funds Beat Growth & Value: 3 Fund Picks - Mutual Fund Commentary

Mid-cap funds are ideal investment options for investors looking for high return potential that comes with lower risk than small-cap funds. These funds are riskier than large-cap funds but are less risky than small-cap funds. Mid-cap funds are not very susceptible to volatility in broader markets, making it an ideal bet given that the macroeconomic conditions have generally offered a roller-coaster ride in recent years.

Generally, companies having market capitalization within $2-$10 billion are considered as a mid-cap firm. However market capitalization in case of funds does not reflect the size of the fund's assets. Instead, it is an indication on what type of securities the fund invests in. Then again, mid-cap funds can be classified under growth, value and blend funds. Each of them has their own fund objective, and caters to different investors.

Growth Funds

When capital appreciation over the long term takes precedence over dividend payouts, growth funds become a natural choice for investors. These funds focus on realizing an appreciable amount of capital growth by investing in stocks of firms whose value is projected to rise over the long term. However, a relatively higher tolerance to risk and the willingness to park funds for the longer term are necessary when investing in these securities. This is because they may experience relatively more fluctuations than other fund classes.

Value Funds

Investors looking for bargain, i.e., stocks at a discount, are mostly interested to invest in value stocks. Value stocks are the ones that pay dividends. Thus, investors not only get to buy securities at a discount, but they get a steady income or yield. Reinvesting the income is ideal for investors who are keen on value investing but are not looking for current income.

Blend Funds

Blend funds are a type of equity mutual funds which holds in its portfolio a mix of value and growth stocks. Blend funds are also known as "hybrid funds". Blend funds aim for value appreciation by capital gains. Blend funds offer an amalgamation of what growth and value funds have to present to investors. Blend funds offer an alternative option for investors who are looking to diversify investments into growth and value assets. Also, blend funds are hugely diversified because they hold a large number of assets to cover both growth and value options.

Performance

The chart clearly shows that the mid-cap funds have had a torrid time over the last one month, which must have diluted some of the year-to-date gains as well. However, gains over 3 and 5 years have been decent enough. The mid-cap core funds have outperformed the growth and value funds in almost all occasions. The times Morningstar Mid Core Index (MMCR) was beaten were when Dow Jones U.S. Mid-Cap Growth Index gained 133.8% over the last five years as compared to MMCR's 120.3% jump, and Morningstar Mid Value Index's 3-year gains of 86.1% beat its' gains of 83.9%.

3 Funds to Buy

We will suggest here the top mid-cap funds from each category.

These funds carry either a Zacks Mutual Fund Rank #1 (Strong Buy) as we expect the funds to outperform its peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but the likely future success of the fund.

The funds are among the top gainers this year so far. They also carry no sales load and have low expense ratio. All of these funds have outperformed the year-to-date gains of S&P MID CAP 400 INDEX, Dow Jones U.S. Mid-Cap Index and Russell Midcap.

Mid-Cap Growth

Principal MidCap Growth Institutional (PGWIX) seeks capital growth over the long term. The fund invests most of its assets in mid-cap growth companies. These companies are expected to post higher than average earnings and capital growth.

The fund has returned 9.4% year to date. The fund's three and five year returns stand at 20.7% and 17.3%, respectively.

The fund carries an annual expense ratio of 0.74% as compared to category average of 1.32%. It carries no sales load.

The fund's top holdings include Harman International Industries, Incorporated (HAR), ServiceNow Inc (NOW) and Netflix, Inc. (NFLX).

Mid-Cap Value

Managed Account Mid Cap Value Opportunities (MMCVX) invests a lion's share of its assets in mid cap companies. The market capitalizations of these companies are within that of companies listed in the S&P MidCap 400 Value Index. The fund may invest a maximum of 30% of its assets in foreign firms.

The fund has returned 6.2% year to date. The fund's three and five year returns stand at 23.1% and 17.7%, respectively.

The fund carries no annual expense ratio as compared to category average of 1.23%. It carries no sales load.

The fund's top holdings include Superior Energy Services, Inc. (SPN), Westar Energy Inc (WR) and American Campus Communities, Inc. (ACC).

Mid-Cap Blend

Vanguard Strategic Equity Investor (VSEQX) invests a majority of its shares in small to mid cap companies offering a balance between attractive growth potential and reasonable valuations as compared to industry peers. Investments are made based on advisor's review of the return potential of the equities. The advisor employs quantitative models to review securities listed in the MSCI US Small + Mid Cap 2200 Index, and also keeps a risk profile like the index.

The fund has returned 8.4% year to date. The fund's three and five year returns stand at 26.7% and 19.4%, respectively.

The fund carries an annual expense ratio of 0.28% as compared to category average of 1.19%. It carries no sales load.

The fund's top holdings include Southwest Airlines (LUV), CF Industries Holdings, Inc. (CF) and O'Reilly Automotive Inc (ORLY).

About Zacks Mutual Fund Rank

By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Learn more about the Zacks Mutual Fund Rank in our Mutual Fund Center .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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