Last week, S&P Capital IQ announced the finalists for its second annual U.S. Mutual Fund Excellence Awards Program. Thirty actively managed mutual funds made the cut in 10 different asset-class categories. Next month, S&P will name the gold, silver, and bronze medal award-winners in each category. In this four-part series, we’ll take a closer look at the finalists in some of the more popular asset-class groups. Are your funds among the winners?
Middle of the road
In Part 1 of this series, we looked at S&P's award-winning large-cap funds. Today we turn our attention to the mid-cap finalists. Although this segment of the market sometimes gets overlooked in favor of large- and small-cap stocks, investors should make sure they've got some dedicated mid-cap coverage, anywhere from 15% of your portfolio if you're more than a decade away from retirement to about 7% if you’ve already bid goodbye to your working years. After all, mid caps have handily outperformed stocks on either end of the market cap spectrum in the past decade and a half, so you don’t want to miss out here.
S&P's three finalists in this category are Fidelity Low-Priced Stock
Fidelity Low-Priced Stock has been headed by skipper Joel Tillinghast for over 21 years now, a rarity in the Fidelity lineup (although Tillinghast is taking a five-month leave of absence through next January). Tillinghast's prowess is hard to argue against -- the fund ranks in the top 2% of its peer group over the past 15 years. Although the fund hasn’t shown any signs of asset bloat yet, it's a monster. With more than $32 billion in net assets, it's the largest actively managed mid-cap blend fund around -- by a wide margin. Not surprisingly, there are nearly 900 holdings in the fund, which is likely a byproduct of the need to put all that cash to work. At some point, this fund will have to slow down its inflows, but so far, its asset load hasn't been a problem.
Meridian Growth focuses on high-quality mid-sized firms with low debt loads and solid measures of profitability. As a result, the fund doesn't look like your typical mid-cap growth fund that only does well in speculative markets. This fund has performed well in both up and down markets, although it really shined back in 2008's tough bear market. Although the fund lost 30.3%, that's in comparison to a 41.5% loss for the Russell Midcap Index and a 43.9% loss for the average mid-growth fund. Meridian Growth ranks in the top 5% of the mid-growth fund category over the most recent decade and a half. Expenses are reasonable at 0.84%, the lead manager has been on board since the fund's 1984 inception, and with a manageable $2.3 billion asset base, there's plenty of room for this fund to grow.
Vanguard Selected Value is the most cost-conscious of the three fund finalists, charging a mere 0.47% for admission. Lead manager Jim Barrow, of subadvisor Barrow, Hanley, Mewhinney & Strauss, has served on the fund since 1999 and manages the bulk of the portfolio here, while the fund's second subadvisor, Donald Smith and Company, was added in 2005. Stocks with below-average valuations are the main draw here. Right now, financials are a big attraction, including cheaply valued names like Discover Financial
Best in show
My pick for the gold medal winner in this category: Meridian Growth.
All three of these funds are truly solid investments, and investors should feel confident owning any of them. But I think Meridian Growth has the best lock on future opportunities. Fidelity Low-Priced Stock is a solid option, but its asset base means that it just can't do the kinds of things the other two funds can -- namely, take advantage of smaller opportunities and stay nimble in the mid-cap market. And while the Vanguard fund is by far the cheapest option, its performance track record has been slightly more inconsistent. Meridian Growth has shown the most skill in capturing gains in up markets while also limiting losses on the downside.
Meridian Growth's focus on high-quality, financially stable names should serve the fund well in the slow-growth economic period likely ahead of us. And while the fund’s financial holdings have hurt it a bit so far this year as the sector has struggled, with holdings such as Affiliated Managers Group
Stay tuned for part three of this series, in which we'll look at S&P's small-cap fund finalists to see which one should take home the gold.