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3 Mid-Cap Value Mutual Funds to Build a Strong Portfolio

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Major U.S. indexes like the Dow, the S&P 500 and the tech-heavy Nasdaq have jumped 14.3%, 22.2% and 34.8%, respectively, over the past year. Even though investors’ confidence has recovered from the lows of 2022, concerns are rife over when the Federal Reserve will ease the overnight interest rate amid strong economic data.

The Institute of Supply Management on Feb 5, 2023, reported that the Services PMI (purchasing manager’s index) for the month of January was recorded at 53.4, ahead of the Wall Street expectation of 52. Any reading above 50 means expansion in services sector activities.

The Labor Department reported on Feb 6, 2023, that in January, the U.S. economy added 353,000 nonfarm jobs, the unemployment rate was 3.7% and the hourly wage rate increased 0.6%. This indicated that the job market is still strong and the Fed expects further easing in labor markets.

Uncertainties in stock markets also increased as the Fed, in its last meeting, kept interest rates unchanged in the range of 5.25-5.50%. It intends to keep the overnight interest higher for longer to achieve its 2% inflation target. Investors, on the other hand, expect to see a rate cut soon, as a high interest rate is weighing on corporate profitability, causing volatility in stock markets.

Amid such shifting times, individual investors can still consider mid-cap value mutual funds that provide excellent opportunities for those who seek returns with lesser risk by gaining exposure to mid-cap stocks that are available at a discounted price or are undervalued.

While large companies are normally known for stability and the smaller ones for growth, mid caps offer growth and stability simultaneously. Companies with market capitalization between $2 billion and $10 billion are generally considered mid-cap companies. These funds have the majority of their investments in sectors such as technology, finance, retail trade, consumer durables and industrial cyclical, which will help investors in long-term growth and preservation of wealth.

Mutual funds, in general, reduce transaction costs and diversify their portfolios without an array of commission charges that are mostly associated with stock purchases (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

We have, thus, selected three mid-cap value mutual funds that have given impressive 3-year and 5-year annualized returns, boast a Zacks Mutual Fund Rank #1 (Strong Buy), offer a minimum initial investment within $5,000 and carry a low expense ratio compared to the category average of 1.01.

Vanguard Selected Value (VASVX - Free Report) fund invests most of its net assets in mid-cap domestic companies, which, according to the advisor, are undervalued. VASVX advisors consider a stock as undervalued if it is out of favor among investors, trading at a price below average in relation to measures estimated such as earnings and book value, and has an above-average dividend yield.

Richard L. Greenberg has been the lead manager of VASVX since Feb 24, 2005. Most of the fund’s investments were in companies like Aercap Holdings (3.4%), TE Connectivity (1.8%) and Globe Life (1.7%) as of Jul 31, 2023.

VASVX has 3-year and 5-year annualized returns of 14% and 15.2%, respectively. VASVX has an annual expense ratio of 0.43%. 

To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

Fidelity Value Fund (FVLKX - Free Report) invests in common stocks of medium-sized companies that possess fixed assets or are undervalued with respect to factors such as assets, earnings or growth potential based on the research of Fidelity Management & Research Company LLC (FMR). FVLKX can also invest in domestic or foreign companies, irrespective of its market capitalization.

Matthew Friedman has been the lead manager of FVLKX since May 12, 2010, and most of the fund’s investments are in companies like Constellation Energy (1.5%), Antero Resources (1.5%) and PG&E (1.3%) as of Oct 31, 2023.

FVLKX has 3-year and 5-year annualized returns of 13.9% and 16.3%, respectively. FVLKX has an annual expense ratio of 0.77%.

Principal MidCap Value Fund (PVEJX - Free Report) seeks long-term capital growth by investing most of its assets along with borrowings, if any, in equity securities of mid-cap value companies i.e. buying equity securities that appear to be undervalued at the time of purchase. PVEJX also invests in real estate investment trusts.

James W. Fennessey has been the lead manager of PVEJX since Jun 1, 2009. Most of the fund’s exposure is in companies like Yum Brands (1.5%), Ross Stores (1.3%), and Everest Re Group (1.3%) as of Oct 31, 2023.

PVEJX has 3-year and 5-year annualized returns of 10.9% and 12.9%, respectively. The annual expense ratio of PVEJX is 0.88%.

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