Not too big and not too small, midcapitalization stock funds can offer diversity and flexibility to investors' portfolios. But just as large-cap growth stocks have fueled the market's gains, midcap growth shares have also been the stars while midcap value stocks have lagged.
"A growth company would tend to grow revenue and earnings at a higher rate than a company in the midcap value segment," says portfolio manager Andrew Cupps of the Strong Enterprise Fund. "You won't see a lot of Internet companies in a midcap value fund, but they will be in midcap growth."
The Strong Enterprise Fund's mix of large-, small- and midcap growth stocks resulted in a 55.8% total return as of August 31, landing it in fifth place for all midcap funds. That easily beat the 7.18% return of all midcap funds for the same period, according to Morningstar Inc., a mutual fund research firm in Chicago.
One reason for the fund's stellar performance: stocks involved in genomics, says Cupps, adding that some of these stocks have seen a 100% increase in their prices. Genomics, a form of biotechnology, is the study of the relationship between genes and diseases.
His picks in the group included Human Genome Sciences (Nasdaq: HGSI), Millennium Pharmaceuticals (Nasdaq: MLNM) and Affymetrix (Nasdaq: AFFX).
"In the first half of the year, a lot of midcap funds that had big stakes in Internet stocks did very well," says Emily Hall, an analyst with Morningstar. "Midcap growth funds are also in biotechnology stocks, which have been fantastic, [but] value funds won't have stakes in either."
Value funds are comprised of stocks that managers think are underpriced. Most value portfolios are stocked with industrial cyclicals, such as energy and financial stocks, which have been running "lukewarm to cool," says Hall.
Meanwhile, semiconductor, software and communications equipment makers have been among the winners for the Loomis Sayles Aggressive Growth fund, says co-portfolio manager Chris Ely. Some of his best performers include: Broadcom (Nasdaq: BRCM), Juniper Networks (Nasdaq: JUNI) and Metromedia Fiber Network (Nasdaq: MFNX).
Ely says the fund was begun in January 1997 to serve as a "graduate school" for the firm's small-cap growth stocks that grew too large.
"We know the dynamics of the companies, we know management and we can take advantage of that when they enter the midcap group," says Ely, whose fund had a total return of 65% through August 31, landing in third place, according to Morningstar.
It's not surprising to hear that Ely thinks midcap growth funds could overtake the large-cap growth funds in the near future. The Standard & Poor's 500 index was up about 10% year-to-date through the first week of September, he noted, while the Russell Mid-Cap Growth index was up 14.09% during the same time frame.
Midcap growth fund managers say the category has been ignored for too long in favor of large-cap portfolios. "We are pretty confident that the money is starting to flow into midcap and small-cap growth funds because these sectors have been underowned," Ely says. "And I think investors will get tired of mega-cap stocks, like Intel and Microsoft, once the diminishing returns take over."
TOP 5 MID-CAP STOCK FUNDS
Fund Name (Ticker) Total Return 1-Year Year-to-date(*) Total Return Nevis Fund (NEVIX) 166.37% 275.32% Van Wagoner Emerging Growth (VWEGX) 135.22 264.64 Loomis Sayles Aggressive Growth(**) 64.47 121.58 Van Wagoner Mid-Cap (VWMDX) 63.64 141.28 Strong Enterprise (SENTX) 55.82 N/A Mid-Cap Stock Fund Averages 7.18 37.96 Fund Name (Ticker) 3-year 5-year Total Return Total Return Nevis Fund (NEVIX) N/A N/A Van Wagoner Emerging Growth (VWEGX) 25.16% N/A Loomis Sayles Aggressive Growth(**) N/A N/A Van Wagoner Mid-Cap (VWMDX) 18.06 N/A Strong Enterprise (SENTX) N/A N/A Mid-Cap Stock Fund Averages 15.54 16.15% Fund Name (Ticker) Toll-Free Minimum Numbers Initial Investment Nevis Fund (NEVIX) 888-263-5597 $10,000 Van Wagoner Emerging Growth (VWEGX) 800-228-2121 1,000 Loomis Sayles Aggressive Growth(**) 800-033-3330 25,000 Van Wagoner Mid-Cap (VWMDX) 800-228-2121 1,000 Strong Enterprise (SENTX) 800-368-3863 2,500 Mid-Cap Stock Fund Averages
(*) Ranked by cumulative total return as of 8/31/99.
(**) No ticker symbol available; Fund is ineligible to be listed on an exchange.
Source: Morningstar, Inc.
BOTTOM 5 MID-CAP STOCK FUNDS
Fund Name (Ticker) Total Return 1-Year Year-to-date(*) Total Return Roulston Growth (ROGRX) -18.47% -3.96% Heartland Mid-Cap Value (HRMCX) -17.28 -6.17 Fidelity Select Environmental (FSLEX) -16.77 -5.19 Strong Schafer Value (SCHVX) -15.60 1.24 Fidelity Select Const. & Housing (FSHOX) -15.47 8.35 Mid-Cap Stock Fund Averages 7.18 37.96 Fund Name (Ticker) 3-year 5-year Total Return Total Return Roulston Growth (ROGRX) 3.01% 8.07% Heartland Mid-Cap Value (HRMCX) NA N/A Fidelity Select Environmental (FSLEX) -5.04 1.93 Strong Schafer Value (SCHVX) 5.44 9.31 Fidelity Select Const. & Housing (FSHOX) 12.34 11.94 Mid-Cap Stock Fund Averages 15.54 16.15 Fund Name (Ticker) Toll-Free Minimum Numbers Initial Investment Roulston Growth (ROGRX) 800-332-6459 $ 250 Heartland Mid-Cap Value (HRMCX) 800-478-3863 1,000 Fidelity Select Environment (FSLEX) 800-544-8888 2,500 Strong Schafer Value (SCHVX) 800-368-1030 2,500 Fidelity Select Const. & Housing (FSHOX) 800-544-8888 2,500 Mid-Cap Stock Fund Averages
(*) Ranked by cumulative total return as of 8/31/99.
Source: Morningstar, Inc.3
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|Title Annotation:||midcapitalization stock funds|
|Date:||Dec 1, 1999|
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