5 Top-Performing Mid-Cap Blend Funds

It’s been a tough time for mid-cap blend stock funds, but the top performers are staying competitive with the broader market.

On average, mid-cap blend funds are up 2.8% in 2023, while the overall stock market as measured by the Morningstar US Market Index is returning 12.2% as of Sept. 26, 2023.

Among the top performers are Vanguard, T. Rowe Price, and FMI. A tilt towards smaller-cap companies is a common characteristic among these funds.

During the 2022 bear market, mid-cap blend stock funds delivered for investors, losing only 14.1% compared to the 19.4% loss of the overall stock market. The gains posted in 2023 by large-company stocks helped even out returns for the trailing 12-month period ending Sept. 26, 2023. During this period, mid-cap blend funds gained 12.7% on average, while the overall stock market gained 18.5%.

Mid-cap blend funds gained 34.3% on average during the three-year cumulative period ending Sept. 26, while the overall stock market gained 32.5%.

What Are Mid-Cap Blend Funds?

Stocks in the middle 20% of the capitalization of the U.S. equity market are defined as mid-cap. The blend style is assigned to portfolios where neither growth nor value characteristics predominate. The typical mid-cap blend portfolio invests in U.S. stocks of various sizes and styles, giving it a middle-of-the-road profile. Most shy away from high-priced growth stocks but aren’t so price-conscious that they land in value territory.

5 Top Performing Mid-Cap Blend Funds

To screen for the best-performing funds in this Morningstar Category, we looked for the ones 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 and those with little or no analyst input about their Medalist Ratings.

From this group, we’ve highlighted the five funds with the best year-to-date performance. No index-tracking 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.

Top-Performing Mid-Cap Blend Funds

FMI Common Stock

• Ticker: FMIUX
• Morningstar Medalist Rating: Gold
• Morningstar Rating: 5 stars

“This strategy looks for companies with durable business models and strong management that generate superior profitability through a full economic cycle, paying particular attention to return on invested capital.

“Despite skepticism about companies that depress current earnings to invest in customer acquisition and network development, the team has sought to learn from the success of firms like Amazon.com AMZN, which have used this tactic to grow their long-term profit potential and factor both tangible and intangible assets into modeling.

“Valuation discipline remains paramount, though. In consultation with co-CIOs Patrick English and Jonathan Bloom, members of FMI’s portfolio management committee assess potential investments as if they were partners in the business. They pay close attention to historical valuations but only buy stocks trading meaningfully below their estimated intrinsic worth. Such bargains tend to occur because of controversy, uncertainty, or short-term headwinds. The team typically shies away from firms with high debt levels, but it will buy those whose cash flows are steady enough to support their leverage.”

—Chris Tate, senior analyst

Madison Mid Cap

• Ticker: MMCRX
• Morningstar Medalist Rating: Bronze
• Morningstar Rating: 5 stars

“Managers Rich Eisinger, Haruki Toyama, and Andy Romanowich employ a prudent strategy. They favor mid-cap firms with competitive advantages, durable earnings growth, solid balance sheets, and strong management oversight. They try to invest in companies that clear these hurdles when their shares look attractive prices based on their own discounted cash flow.

“Below-average turnover reflects the managers’ long holding periods. Its annual portfolio turnover has ranged from 22% to 27% during the past five years, which landed well below the mid-blend category median. The fund has held more than a fourth of the portfolio’s stocks for more than 10 years, including used-car dealer CarMax KMX and insurer Markel Corp MKL. The managers like to see persistent above-average free cash flow and return on invested capital. They hold 25-40 stocks and focus on corners of the market they believe they know best.

—Stephen Welch, senior analyst

T. Rowe Price Integrated US SMCC

• Ticker: TQSIX
• Morningstar Medalist Rating: Silver
• Morningstar Rating: 3 stars

“The managers use a low-turnover approach rooted in academically supported factors. It ranks stocks primarily based on a combination of their valuation, profitability, and earnings quality, and also considers their price momentum. They build a well-diversified portfolio of 325-360 stocks, keep sector weights close to the Russell 2500 Index, and let valuation-oriented stock picking drive performance. They favor stocks that look attractive to both the quant models and the fundamental analysts.

“The managers keep a tight lid on the portfolio’s tracking error (the volatility of its relative returns) by keeping its sector weights fairly close to the benchmark’s. They mitigate stock-specific risk by capping individual positions to 1% of assets, but make prudent exceptions to let winners run even if they exit the index.”

—Paul Ruppe, analyst

Vanguard Strategic Equity

• Ticker: VSEQX
• Morningstar Medalist Rating: Bronze
• Morningstar Rating: 4 stars

“This benchmark excludes the largest 300 names, whereas the Russell Midcap Index excludes the largest 200. The fund’s small-cap bias means it is likely to underperform the index when small caps lag the broader market.

“The fund’s strategy starts with its prospectus benchmark, the MSCI U.S. Small + Mid Cap 2200 Index, then ensures the portfolio doesn’t take sector bets. The quant model historically consisted of five factors—valuation, growth, quality, momentum, and management decisions—relative to industry peers. Lead manager Cesar Orosco recently added a defensive component to avoid heavily shorted stocks, and he is currently working to have the model’s optimizer understand market context when weighting various factors.”

—Megan Pacholok, senior analyst

Eaton Vance Atlanta Capital SMID-Cap

• Ticker: ERASX
• Morningstar Medalist Rating: Silver
• Morningstar Rating: 4 Stars

“The managers have high but ultimately reasonable expectations. They want companies with competitive advantages, free cash flows that exceed net income, and mid-single-digit earnings growth. They prefer established businesses with at least 40 quarters of operating history and relatively stable earnings streams, avoiding highly cyclical or commodity-linked firms as well as speculative, trendy offerings. Prospects should be attractively valued relative to their own history and peers on measures such as price/free cash flow, enterprise value/EBITDA, or projected private-market value.

“The team is selective and patient. The typical portfolio has 45-60 holdings, each capped at 5% of assets or less. Annual turnover is often less than 25%. The managers aren’t tethered too closely to their benchmark, let alone the Russell Midcap Growth Index, and their conservative growth and earnings expectations may lead them to underweight popular growth sectors like technology at times.”

—Tony Thomas, associate director