Find Strong Supporting Players Here

In some recent Five-Star Investor columns, we've used Morningstar's Premium Fund Screener (available on Morningstar.com) to home in on funds that can serve as core holdings because of their focus on well-established companies. This time around, we're shooting for growth funds that Morningstar fund analysts believe should play a limited role in a portfolio because of their maverick nature--in most cases, these funds are volatile and/or invest heavily in smaller-cap stocks. While these funds can prove streaky at times and provide more ups and downs, the most proven ones should serve investors well over the long term.

We set up a number of stringent screens using the Premium Fund Screener to identify these funds. The following criteria were used: U.S. nonspecialty stock funds (only their distinct portfolios, to eliminate multiple share classes) that have been covered by Morningstar fund analysts and deemed supporting players. We also limited the search to funds that reside in the growth (right-hand) side of the Morningstar Style Box and have not been among the most volatile in their category. In order to eliminate funds that focus heavily on small-cap stocks (which would otherwise dominate this list--we wanted funds that were a little more flexible), we selected Stock Portfolio Statistics from the dropdown menu and required the results to have an average market capitalization of at least $2 billion.

Of course, these funds should be proven, too. The Screener was set to isolate funds with managers who have been on board for a minimum of 10 years and have beaten at least two thirds of their category peers over the past three years and at least 75% of them over the past decade (both tumultuous periods for equities). Finally, the funds should be modestly priced and accessible to most investors, so the search was limited to funds with expense ratios below their category average that are open to new investors and require a minimum initial investment of no more than $10,000.

The Screener returned the following results as of March 15, 2010. Click here to run the screen yourself.

 FPA Paramount 
 FPA Perennial 
 Franklin Growth (FKGRX)
 T. Rowe Price Mid-Cap Growth (RPMGX)
 Westport 

 T. Rowe Price Mid-Cap Growth (RPMGX) is the behemoth of the group with nearly $16 billion in assets. Brian Berghuis, who has managed it since its June 1992 inception, has delivered excellent returns over the short and long haul. And while the fund is pretty hefty given its emphasis on smaller-cap fare, Berghuis' patient investing style and a broadly diversified portfolio ease concerns about its size. He buys companies that he expects will see accelerating profits (though perhaps not right away) and also have solid business models as well as modest valuations.

 FPA Paramount  and  FPA Perennial  are essentially identical funds--the only difference is that Paramount is a better choice for investors in taxable accounts because of its hefty tax-loss carryforward. Eric Ende and Steve Geist have run the funds for a decade (Ende began managing Perennial in 1995). They invest primarily in small- and midcap companies that generate strong returns on capital, sport relatively healthy balance sheets, and trade at modest valuations relative to their histories (but the funds consistently land in the mid-growth part of the style box). Although Ende and Geist run a concentrated portfolio, the funds haven't been more volatile than their typical peers. Furthermore, they've turned in excellent results over most longer periods.

 Westport  resides in the mid-blend category, but its portfolios have consistently landed in the mid-growth style box over the past few years. Manager Ed Nicklin buys companies of all sizes that look cheap relative to their earnings growth prospects, which has resulted in an eclectic list of holdings that includes cyclicals such as  EOG Resources (EOG), consumer goods makers like  Dr Pepper Snapple (DPS), and tech firms  Synopsys (SNPS) and  Amphenol (APH). He hangs on to his picks for years and is willing to make big sector bets at times, so the fund's relative returns have been streaky. But it has delivered the goods during his 12-year tenure.

Manager Jerry Palmieri's presence means  Franklin Growth (FKGRX) is hardly a standard-issue large-growth fund. During his 45-year tenure (that's not a typo), Palmieri has typically held stocks for extremely long periods--portfolio turnover stays firmly in the single digits. He looks for industry leaders that he can hold for a long time, but that doesn't mean he focuses on mega-cap names; he's more than willing to delve into smaller companies. Furthermore, he'll occasionally hold a hefty stake in cash (it has reached 30% at times) when he believes valuations are getting lofty. Although the latter tactic has met with mixed results, Palmieri's stock-picking has served shareholders well over time.

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