From the May 2005 issue of Investment Advisor • Subscribe!

May 1, 2005

The Case for Mid-Cap Growth

Mid-cap growth stocks tend to provide higher growth rates and lower valuations than larger-cap equities, while enjoying less volatility and more liquidity than their smaller-cap counterparts. After posting three consecutive negative years from 2000-2002, mid-cap growth funds have rebounded with strong positive performances the past two calendar years, buoyed by the resurgent domestic economy.

One of the better longer-term performers within the mid-cap growth universe is the $298 million Munder MidCap Select Fund (MGOYX), which invests in companies that can deliver consistent, above-average earnings growth. With 66 holdings in the portfolio as of Feb. 28, the portfolio is broadly diversified by sector--the top industries consisted of consumer discretionary (19.4%), health care (13.6%), information technology (13.5%), and financials (13.2%). The top 10 holdings represented only 22.2% of the fund's total assets.

Co-managed by Shi Cao, Tony Dong, and Brian Matuszak, the fund typically comprises between 50 and 100 stocks of companies represented by the S&P MidCap 400 index. Unlike most growth investors, the managers don't buy and sell much: turnover is a low 53.3%, far below the 134% average for the asset class.

Another long-term top performer, the $1.25 billion Columbia Acorn Select Fund (ACTWX), is a highly concentrated portfolio, just 35 stocks as of February 28, which are held for the long term. The fund has an extremely modest turnover rate of 16%. Manager Ben Andrews invests nearly half of the fund's assets in either information technology or consumer discretionary stocks, and the top 10 names in the fund represent a whopping 40.9% of total assets.

Andrews focuses on mid-cap stocks trading at a reasonable price and that may fall below Wall Street's radar. His recent top holdings include ITT Educational Services Inc. (ESI), McAfee Inc. (MFE), and TCF Financial Corp. (TCB).--Palash R. Ghosh

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