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Few categories illustrate last year's market free-fall as dramatically as mid-cap growth. In
2007 this was the best performer out of the nine Morningstar Style Box categories, with an
average gain of 15%, but in 2008 it was the worst, with an average loss of 44%. No single
factor was responsible for this stunning reversal, because stocks got pounded across the
board due to the credit crisis and weakening world economy. However, several of the
hardest-hit industries, such as auto parts, agriculture, oil services, and various other
commodity-related industries, are disproportionately represented in mid-cap growth,
resulting in an especially tough year for the category.
Virtually all mid-cap growth funds suffered significant losses in 2008, but those that held up
the best in this hyper-volatile market tended to be those that focus on stable, fundamentally
strong companies without too much debt, while the worst performers tended to be either
aggressive, momentum-driven funds or those that loaded up on financials, commodities, and
other hard-hit areas. Of all funds in the category with at least $100 million in assets, the best
performer in 2008 was Meridian Growth MERDX, with a portfolio of high-quality stocks that
manager Rick Aster tends to hold for the long term. The worst performer was Legg Mason
Opportunity LMOPX, which was badly hurt by some of manager Bill Miller's bad financial calls,
including Countrywide Financial and Indymac Bancorp.
These tendencies were also on display in our Analyst Picks. The three that ended the year in
the category's top quartile ( Buffalo Mid Cap BUFMX, FPA Paramount FPRAX, and
Primecap Odyssey Aggressive Growth POAGX) all have very low turnover and generally
cautious natures that played well in this market. On the other hand, Brandywine BRWIX
and Turner Midcap Growth TMGFX have more aggressive, momentum-drive styles and
annual turnover above 150%, and both funds struggled in relative terms last year. We still
like all of these funds, but they've always tended to excel in different types of markets.
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Fund has a front load.
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Closed to new investors.
Returns through 1/14/2009.
Brandywine BRWIX
This fund's momentum-driven, research-oriented approach worked well in the volatile
market of 2007 but had a tougher time in last year's market collapse. We're normally wary
of funds with such high turnover, but this fund's strong research team and fine long-term
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Our Favorite Mid-Cap Growth Funds http://news.morningstar.com/FundAnalystPicks/printNews.asp?id=MG
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