Posted by: Karyn McCormack on February 1, 2006
We’ve all seen and heard how small stocks have beat large ones for the last few years. Nestled between the two are mid-caps, which aren’t too shabby either. In fact, the S&P MidCap 400 index has beat most types of stocks for the last 20 years on an annualized basis. From 1986 to 2005, mid caps returned a healthy 15% a year, vs. 12.68% for small cap value stocks (Russell 200 Value index) and 11.93% for large stocks (S&P 500 index).
The stats come from Tony Dong, senior portfolio manager and director of mid-cap equities at Michigan-based Munder Capital Management, who I met for the first time today in New York City. “Mid caps are the small cap survivors and tomorrow’s blue chips,” says the manager of the Munder Mid-Cap Core Growth Fund (MGOAX). (Dong also co-manages the Munder Small-Mid Cap (MASMX) and Balanced (MUBAX) funds).
The Mid-Cap Core Growth Fund, ranked 5 Stars by Morningstar and a Lipper "Leader," has outperformed the S&P 400 for the last three years. As its name suggests, the fund searches for growth, but it has a "core" or more conservative bent. Dong says he employs "robust risk controls" when he screens for stocks with market caps between $1 billion and $10 billion. He measures how to overweight and underweight sectors, while assessing each company's growth, valuation, and currency risk.
One of the fund's top holdings is AmeriTrade (AMTD), which recently acquired fellow brokerage TD Waterhouse. He likes the fact that the company recently paid a $6 dividend per share, and that it has a broad income stream and fixed costs.
In tech, Dong likes j2 Global Communications (JCOM), a provider of online fax services that's benefiting from the need to keep records because of Sarbanes-Oxley. The mass of paperwork produced from the real estate boom has also helped the company, he says.
The stock he's really excited about is Blackbaud (BLKB), a provider of software to nonprofit organizations. Its software is geared specifically to help nonprofits manage and track their fund raising efforts. "It throws off cash like crazy," Dong says, plus it uses the extra profits to pay a dividend. The biggest knock on it, Dong says, is that two large private equity firms owned large stakes. One of the firms recently sold its stake, but there's still an overhang on the stock if the other firm decides to sell. "That would be a good entry point," reasons Dong, who tells me he likes to play golf and race his Porsche 911 in his spare time.