Good funds that have deceptively poor performance.
This article originally appeared in Morningstar FundInvestor, an award-winning newsletter that presents investment strategies and tracks 500 funds.
At the crossroads of the Morningstar style bx, mid-blend encompasses a wide range of portfolios and strategies. Some are all-cap-focused funds. Others are pure mid-cap plays but hold lots of value and growth. Buffett fans Fairholme Fund
This diversity means there will always be some good funds that have deceptively poor performance just because they are so different from the category in aggregate. With that in mind, here are four excellent mid-blend funds you might easily overlook.
This fund has faced two types of head winds lately. First, it has a sizable chunk in large caps as its $9.3 billion average market cap demonstrates. Although large caps were okay in 2006, they've been crushed by mid- and small caps over the past five years. Second, John Rogers' strategy is a conservative one that looks great in down years but can be sluggish in strong rallies like the one we've enjoyed lately. Rogers looks for steady companies trading at steep discounts to his estimates. That can lead him to some rather sleepy companies that plod along and then get bought out at a nice premium. Although performance has dipped, all the funda-mentals are still there. We were also pleased to see that Rogers recently named Matt Sauer, former Oak Value Fund
This fund is also lagging because of its caution. John Fox and Thomas Putnam look for companies with healthy balance sheets and strong cash flows, but they prefer not to pay up for a stock. That's left the fund out of some hot areas like energy; as a result, the fund has lagged. In terms of market cap, the fund is a nearly pure mid-cap play though its holdings do stretch from the value side of the style box to the growth side. We visited the managers in their Cobleskill, N.Y., offices and were impressed by their commitment to shareholders, stability of investment professionals, and long-term focus. The fund rates an A for stewardship. The fund still has solid returns for the trailing 10- and 15-year periods, and we expect a rebound in more favorable environments.
Westport Select Cap
Like FAM, Westport is run by a small but stable groupof managers. Ed Nicklin and Andy Knuth employ a low-turnover, growth-at-a-reasonable-price strategy. They straddle the line between small cap and mid-cap and between blend and growth. It's that growth bias that has held back returns in a value-dominated decade. Even so, the fund is well ahead of its peer group since its inception on the last day of 1997. Despite the fund's growth bias, Nicklin and Knuth
keep risk in check by keeping a close eye on industry diversification. If you hold this fund, consider it a keeper. If you don't, consider Westport Fund
This is a great fund, but you can't tell that from its record. Run by Selected's outstanding corps of analysts, the fund has been hurt by a growth bias and a sizable slug of large caps. Even so, we love the fact that this fund has a tiny asset base, reasonable costs, great stewardship, and excellent analysts. If you don't have any mid-cap funds, this would serve as nice single mid-cap play. I wouldn't pair it with a mid-growth fund, however, because of its growth tilt.
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