Quick Take: Why is Rod Wright, in his words, “very enamored” of medium-sized companies? Because, he explains, they can grow as fast as small ones, and faster than large ones, while offering the successful track records and seasoned management of their bigger brethren.
Wright, the lead portfolio manager of Pioneer Mid-Cap Value Fund/A (PCGRX), hunts for investments among mid-cap stocks of companies that feature above-average earnings and profit margins, and sound balance sheets. He wants to buy shares priced at a discount to what he thinks a company is really worth. Then, he looks for something that will boost their valuation.
Under Wright, the $1.1-billion fund has stayed ahead of its peers by a nose. Pioneer Mid-Cap Value lost 3.8% this year through March, while the average mid-cap value fund was off 4.5%. The fund gained an average annualized 1% for the three years ended in March, compared to a return of 0.8% by its peers, while exhibiting slightly less volatility.
The Full Interview:
In 1998, a year after taking over his fund, Rod Wright asked to change its profile by switching from small to mid-cap stocks.
That’s because Wright, who focuses on companies with market capitalizations of $1 billion to $10 billion, believes they offer the best attributes of big and little businesses.
“You’re choosing from a pool of winners,” he says.
Compared to small enterprises, medium-sized ones have longer operating histories, which enables management to gain experience in dealing with competitors and the economy’s ups and downs, Wright says. Their established positions also make banks more willing to provide financing when needed, he says.
At the same time, mid-sized companies can grow faster than those that have already become giants, and they’re easier to analyze since, by and large, they have fewer business units, he argues. “Their financial statements aren’t incredibly obscure or complex,” he says.
In picking stocks, Wright looks for those whose earnings, balance sheets, market shares, and top executives are better on average than companies that comprise the Standard & Poor’s 500-stock index. Next, he looks for shares selling at a significant discount to what he thinks a company is actually worth.