While mid-cap growth funds have lagged funds that focus on large-company stocks, the top performers have put up returns well ahead of the broader market.
As with other growth stock categories, investors in mid-cap growth funds have enjoyed a bounce in 2023. So far this year, the average mid-cap growth fund is up 13.2% while the Morningstar US Market Index gained 16.4%.
Mid-cap growth funds have seen wavering performance compared with the overall market in recent years. During the 13-month period starting from the last quarter of 2020 until the category’s peak in October 2021, these funds outperformed the overall market on average.
In 2022, the category lost 28.2% while the stock market lost 19.4%. The gains posted in 2023 so far have evened out the gains for the 12-month trailing period, as the category has gained 13.8% compared with the 17.5% gain of the overall stock market.
What are the Top Mid-Cap Growth Funds?
Stocks in the middle 20% of the capitalization of the U.S. equity market are defined as mid-cap. Some mid-cap growth portfolios invest in stocks of all sizes, leading to a mid-cap profile, but others focus exclusively on midsize companies. Mid-cap growth portfolios target U.S. firms that are projected to grow faster than other mid-cap stocks, which means those stocks can often command relatively high valuations. Growth is defined based on fast growth (high growth rates for earnings, sales, book value, and cash flow) and high valuations (high price ratios and low dividend yields).
9 Top-Performing Mid-Cap Growth Funds
To screen for the best-performing funds in this Morningstar Category, we looked for those that have posted top returns across multiple time periods.
We first screened for funds that ranked in the top 33% of the category using their lowest-cost share classes over the past one-, three-, and five-year time frames. In addition, we screened for funds with Morningstar Medalist Ratings of Gold, Silver, or Bronze for those classes. We also excluded funds with less than $100 million in assets.
From this group, we’ve highlighted the nine funds with the best year-to-date performance. This group only consists of active funds; no passively managed funds made the cut.
Because the screen was created with the lowest-cost share class for each fund, some funds may be listed with share classes not accessible to individual investors outside of retirement plans. The individual investor versions of those funds may carry higher fees, which reduces returns to shareholders. A table with the funds’ returns can be found at the bottom of this article.
PGIM Jennison Mid-Cap Growth
- Ticker: PJGQX
- Morningstar Medalist Rating: 4 stars
- Morningstar Rating: Bronze
“Following 2020′s first-quarter selloff, the strategy’s 131.4% cumulative return between March 23, 2020, and Feb. 15, 2021, was 16.2 percentage points more than the index. Then when the index fell 27.3% from its November 2021 peak to its March 2022 trough, the strategy held up better than both the index and its peers. Over Ben Bryan’s brief stint as manager, the strategy captured 103% of the benchmark’s returns in up markets but 96% of its returns in down markets.
“The team’s focus on fundamentally sound companies helped the strategy fare a bit better than most during 2022′s downturn. While brutal, the strategy’s 23.8% loss for the year still beat the index and 74% of its peers. Stock-picking within industrials and information technology was the primary positive driver over the period.”
—David Carey, associate analyst
Virtus KAR Small-Cap Core
- Ticker: VSCRX
- Morningstar Rating: 5 stars
- Morningstar Medalist Rating: Gold
“The fund calls itself a small-cap strategy, and its managers generally buy small-cap companies. However, they like to stick with them if they’re doing well. Those companies’ stocks sometimes rise into mid-cap territory as a result.
“The team applies a patient process focusing on high-quality companies. Rather than look for stocks with the highest growth prospects, the team targets companies with reliable revenues, high profit margins, and low financial risks with promising upside potential. They then construct a concentrated portfolio of roughly 30 top ideas and rarely trade them. The managers have few constraints when building the portfolio, aside from a 10% maximum position size. While this concentration creates some single-stock risk, the portfolio has generally held up well when markets have turned south.
“Since the managers’ joint tenure began, the strategy has posted exceptional results. From March 2009 through August 2022, the I shares’ 18.0% annualized return easily outpaced its best-fit benchmark, the Russell 2500 Index, by more than 3 percentage points.
“The strategy’s risk-adjusted returns are even…
Read More: 9 Top-Performing Mid-Cap Growth Stock Funds