Mid-cap growth stocks would seem to be the ideal investment for those seeking high returns and low volatility. Companies from this corner of the market tend to offer greater growth rates than their large-cap peers, while providing more liquidity and stability than their smaller-cap counterparts. Indeed, mid-cap growth mutual funds have decidedly outperformed the S&P 500 index (the popular bogey for large-cap U.S. stocks) over the recent one-, three-, and five-year periods, amidst a weakening economic climate.
One of the best performing funds in this sector, the $4.6-billion Janus Orion Fund, invests in a small number of stocks chosen for their upside potential. Portfolio manager Ron Sachs looks for companies he believes can "deliver consistent and sustainable earnings growth" and which have "strong businesses that are early in their growth cycles." Such companies typically possess pricing power, high barriers to entry and competitive advantages.
As of August 31, the fund comprised 48 individual holdings, with the top five names accounting for more than one-quarter (28.5%) of the portfolio's total assets. The number one position, Dade Behring Holdings (DADE), the clinical diagnostic instrument maker, accounted for a whopping 11.4% stake.
Sachs can invest without regard to cap size and with no limits on geography. Almost one-third (32.5%) of the portfolio is parked in foreign equities. (Note: John Eisinger will replace Sachs as portfolio manager, effective January 1, 2008.)
A recent strong performer among this asset class, the $196-million Eaton Vance Multi-Cap Growth Fund, seeks U.S. companies that are expected to grow faster than the overall U.S. economy. As of June 30, portfolio manager Arieh Coll had 80 stocks in the fund, with information technology (24.4%), health care (11.8%), energy (11.3%) and industrials (10.7%) representing the top sectors.--Palash R. Ghosh