These Morningstar Medalists have served risk-averse investors well.
By Linda Abu Mushrefova | 12-07-17 | 06:00 AM | Email Article

A version of this article was originally published in the November 2017 issue of Morningstar FundInvestor. Download a complimentary copy of FundInvestor here.

Linda Abu Mushrefova is a manager research analyst for Morningstar.

The current bull market, the second-longest in history, raises concerns of lofty valuations and excessive risk-taking in some areas. However, we have identified five mid-cap funds that have used risk responsibly. The below list is not exhaustive but highlights Morningstar Medalists (some of which are closed to new investors) that have held up well in market pullbacks and have outperformed over the long term.

 American Century Mid Cap Value , which has a Morningstar Analyst Rating of Silver, has proved the merit of its valuation-focused approach over the long run. Notably, the fund offered some protection during the bear market from late 2007 to early 2009, losing 28.5%, which was significantly less than the Russell Midcap Value's 38.4% decline. The fund has consistently outperformed through management's focus on identifying names with high returns on capital, low debt, and attractive valuations. The fund has landed in the top decile of the mid-cap value Morningstar Category on a risk-adjusted basis over the trailing three-, five-, and 10-year time frames. It has achieved consistent outperformance with lower volatility than its average peer throughout its lifetime.

Gold-rated mid-value fund  Diamond Hill Small-Mid Cap  has a slightly higher risk profile than American Century Mid Cap Value. However, it has used this risk responsibly and rewarded investors over the long term. The team's intrinsic value philosophy demonstrated its merit during the financial crisis as well as in the subsequent recovery as seen by its top-decile finish on a risk-adjusted basis for the trailing five- and 10-year time frames. While the fund will tend to lag in frothier markets, investors who stick with it should reap the rewards.

 Janus Henderson Enterprise  is another fund that has provided superior downside protection without sacrificing too much of the upside. This Bronze-rated mid-growth fund's low-turnover approach focuses on identifying names with stable revenues and competitive advantages. It seeks to identify durable growth and will lag in frothier markets, as seen in 2009 and 2013, but over the long term this has been a great option.

 Champlain Mid Cap , which has an Analyst Rating of Gold, has fared well in down markets and rewarded investors over a full market cycle by using a valuation-conscious approach. Further, the team's quality bias has contributed to excellent performance relative to its mid-growth category peers over the trailing three- and five-year time frames. However, patience is required here as the fund will tend to lag in frothier markets or those that are not driven by fundamentals.

The only fund on our list that's currently open to new investors is Gold-rated  FMI Common Stock . This mid-blend fund has also stood out in market pullbacks as a result of its valuation-centric process. Despite a concentrated portfolio, the team has responsibly handled the risks that this approach presents and has consistently rewarded shareholders in the process, making this a great option for risk-averse investors.

Securities mentioned in this article



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Linda Abu Mushrefova does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.
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