28 KIPLINGER’S PERSONAL FINANCE^ 02/2020IN THEORY, MIDSIZE-COMPANY STOCKS
operate in a sweet spot for investors.
No longer struggling to get out of the
gates, these financially mature firms,
led by experienced executives, should
come with more stability than small
companies. They should also offer
greater potential for growth than
mega-size firms, whose shares have
market capitalizations (stock price
multiplied by shares outstanding)
that run into the hundreds of billions.
In practice, the theory holds true
over longer periods of time. Over the
past 20 years, constituents of the Rus-
sell Midcap index, which currently
sport market caps between $2 billion
and $35 billion, have boosted earnings
per share at a faster rate, on average,
than their large- and small-cap coun-
terparts. During the same period, mid
caps have been about 14% more volatile
than stocks in the large-cap Standard
& Poor’s 500-stock index and 15% less
volatile than the small-cap Russell
2000 index. And in just about any time
frame you choose—whether it’s 10, 15,
20 or 30 years—mid-cap stocks have
outperformed both their smaller and
larger counterparts.
As of June 2019, mid-cap stocks rep-
resented 26% of the U.S. stock market,
but only 11% of assets in U.S. mutual
funds, according to asset manager
Carillon Tower Advisers. If you’re con-
sidering upping your stake in medium-
size firms, consider the following funds,which focus mostly on mid caps. All
have able managers, impressive long-
term track records and are open to
new investors. Returns and other data
are through November 30.1
Baron Asset Nearly every
mutual fund manager claims
to invest for the long term, but few
take this principle as seriously as
Baron Asset fund manager Andrew
Peck. His fund’s 9.9% turnover ratio
implies that stocks tend to remain in
the portfolio for more than 10 years,
on average. The average fund invest-
ing in fast-growing midsize firms
tends to jettison a stock before the
second anniversary of its purchase.
For consideration in the portfolio, a
firm must sport an excellent manage-
ment team, an established competitive
advantage over peers and a long run-
way for growth. Businesses that meet
the latter requirement typically offer
a product or service that addresses a
large and growing market and aren’t
sensitive to cyclical swings in the
economy or commodity prices, says
Peck. The top bet in the portfolio is
Idexx Laboratories (IDXX), a leading
maker of diagnostic tools used by vet-
erinarians. Peck says the firm domi-
nates a market in which he sees sales
growing at a rate in the high-single-
digit percentages over the next half-
decade, thanks to increased demand
for veterinary services and growth inMidsize companies offer investors a winning combination
of maturity and growth potential. BY RYAN ERMEYMUTUAL FUNDS5 MARVELOUS
MID-CAP FUNDS
INVESTING