Mid-blend funds actually up thus far in 2002

Attention to value pays off for investors

Dollars & Sense

April 28, 2002|By Catherine Hickey | Catherine Hickey,MORNINGSTAR.COM

Owning a mid-blend fund has paid off for investors lately.

The mid-blend group isn't up by much thus far in 2002, but it's one of only a handful of categories that are in the black so far this year. As categories emphasizing growth over value continue to stumble, the mid-blend group's 1.64 percent return through April 15 looks quite healthy.

The group's valuation-conscious profile has made the difference. Generally, the group is composed of funds with a solid mix of both growth and value issues, so their price multiples tend not to be astronomically high. That helps the category hold up nicely in a variety of markets, but it's especially beneficial in an environment where growth stocks continue to lag behind value issues overall.

Also, as small-cap funds have bested larger-cap offerings lately, funds that specialize in smaller fare have done better.

Not surprisingly, mid-blend funds that lean toward the smaller-cap and value sides of the style box are generally outperforming their peers in 2002. Ariel Appreciation, for example, leans toward the smaller-cap end of the mid-blend spectrum, and it is being boosted this year in part by the success of a few financials as well as by its lack of sluggish tech stocks.

Also, Yacktman Fund has continued its rise from the performance ashes in 2002, aided by a portfolio heavy with consumer-staples stocks.

We did make one small change recently to our Analyst Picks - Selected Special Fund replaces Davis Growth Opportunity. They're essentially the same funds; managers Chris Davis and Ken Feinberg picked up management duties on Selected Special last year from Elizabeth Bramwell and retooled the portfolio into a no-load version of Growth Opportunity. Thus, the lower-cost fund wins out in our picks.

Vanguard Mid Capitalization Index:

This fund tracks the S&P MidCap 400 index, so it offers broad exposure to a wide variety of mid-cap companies. It's also one of few mid-blend funds to consistently beat that bogy over time. To top it off, it offers extremely low expenses, a Vanguard trademark. Those looking for a core mid-cap fund will want to look here.

Vanguard Capital Opportunity:

It's been a rough year for this fund. Foundering tech and biotech picks have led to bottom-decile results for 2002. Shareholders shouldn't give up on it, though; its long-term record is one of the very best in the category. Managers Howard Schow, Joel Fried and Theo Kolokotrones have been here since inception, and they have accumulated a similarly excellent record at their other charge, Vanguard Primecap. Though its all-cap, go-anywhere strategy can lead it astray at times like these, it remains a great choice.

Oak Value:

This is another fund that is having a rough go as stakes in struggling cable stocks such as Comcast have hit it hard. However, over time, this fund's management team has delivered the goods. The managers buy solid, well-managed businesses that are selling for cheap price tags and hold them for a long time. While concentration in a few sectors can trip it up at times, its long-term returns are still strong.

Davis Growth Opportunity:

This fund's main draw is manager Chris Davis, who has racked up great returns at Selected American and Davis NY Venture. Davis and co-manager Ken Feinberg keep their value discipline intact here, and they look for mid- and large-cap companies that are well-managed and trading cheaply. However, this fund's portfolio is a place where they can park some of their more offbeat and growthy picks. For instance, the fund's tech stake is sizable, and car-racing stock International Speedway was a recent addition.

This fund is a little racy to be a core holding, but it can be a nice complement to a deep-value offering or a small-cap fund.

Selected Special:

Since taking over this fund in May 2001, Chris Davis and Ken Feinberg have made it into a wide-ranging mid-cap offering that isn't afraid to walk on the wilder side of the category. Indeed, Davis and Feinberg have quite a bit of technology exposure in the fund. That didn't help returns last year, but the fund is holding up fairly well. Because of its quirky portfolio, it should be used as a supplementary holding in a well-diversified portfolio.

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