Investing in mid-cap stocks can offer the opportunity to invest in growing companies before they’re widely known. These five funds have a reliable track record of returns. To screen for the top-performing funds in this category, we looked for those with the best returns over the last one-, three-, and five-year periods. Five made it through the screen:
- Fidelity Mid Cap Growth Index Fund FMDGX
- iShares Russell Mid-Cap Growth ETF IWP
- Principal MidCap Fund PMAQX
- Touchstone Mid Cap Growth Fund TFGRX
- Vanguard Mid-Cap Growth Index Fund VOT
Over the last 12 months, mid-cap growth funds have returned 10.94%. On an annualized rate, mid-cap growth funds have returned 9.20% over the last three years and 8.62% over the last five. That compares with the Morningstar US Market Index, which has returned 13.73% over the last 12 months, 13.72% per year over the last three years, and 15.18% per year over the last five years.
What Are Mid-Cap Growth Funds?
Some mid-cap growth portfolios invest in stocks of all sizes, thus leading to a mid-cap profile, but others focus on midsize companies. Mid-cap growth portfolios target US firms that are projected to grow faster than other mid-cap stocks, therefore commanding relatively higher prices. The US mid-cap range for market capitalization typically falls between $1 billion-$8 billion and represents 20% of the total capitalization of the US equity market. Growth is defined based on fast growth (high growth rates for earnings, sales, book value, and cash flow) and high valuations (high price ratios and low dividend yields).
Screening for the Top-Performing Mid-Cap Growth Funds
To find the best mid-cap growth funds, we looked at returns data from the past one-, three-, and five-year periods using data in Morningstar Direct. We screened for open-ended and exchange-traded funds in the top 33% of the category using their lowest-cost primary share classes for those periods. We also filtered for funds with a Morningstar Medalist Rating of Bronze, Silver, or Gold. We excluded funds with assets under $100 million and analyst coverage that was not 100%. This left five funds.
Because the screen was created with the lowest-cost share class for each fund, some may be listed with share classes that are not accessible to individual investors outside of retirement plans, or they may be aimed at institutional investors and require large minimum investments. The individual investor versions of those funds may carry higher fees, reducing returns to shareholders. In addition, Medalist Ratings may differ among the share classes of a fund.
Fidelity Mid Cap Growth Index Fund
- Morningstar Medalist Rating: Silver
- Morningstar Rating: ★★★★
This $2.5 billion fund has climbed 23.49% over the past 12 months, outperforming the average fund in its category, which rose 10.94%. The Fidelity fund, launched in July 2019, has climbed 15.76% over the past three years and 11.87% over the past five.
iShares Russell Mid-Cap Growth ETF
- Morningstar Medalist Rating: Bronze
- Morningstar Rating: ★★★★
Over the past 12 months, this $18.5 billion fund has gained 23.35%, while the average fund in its category is up 10.94%. The iShares fund, launched in July 2001, has climbed 15.58% over the past three years and 11.70% over the past five.
“iShares Russell Mid-Cap Growth ETF provides a market-cap-weighted portfolio that effectively represents the mid-cap growth Morningstar Category. The fund tracks the Russell Midcap Growth Index, which captures the faster-growing side of the mid-cap market. Mid-cap growth stocks tend to have high valuations because of investor sentiment around their superior growth prospects.
“This fund doesn’t venture as far toward the growth end of the Morningstar Style Box as many peers. It still effectively represents the opportunity set available to active managers in the category. Most holdings fall into the consumer cyclical, industrials, and technology sectors. Those three sectors account for almost two thirds of the portfolio.
“The average constituent has a market cap of about USD 29 billion, about $4 billion larger than the average category peer. Larger stocks can help contain volatility. The fund effectively spreads risk across its 290 stocks, with 20% of assets concentrated in its top 10 holdings.
“The fund’s performance advantage relative to the category was pronounced over the 10 years through 2024. It outperformed the average category peer by 1.56 percentage points annualized with comparable volatility, translating into a risk-adjusted return advantage as well.”
—Zachary Evens, analyst
Principal MidCap Fund
- Morningstar Medalist Rating: Gold
- Morningstar Rating: ★★★★★
This $30.8 billion fund has climbed 14.63% over the past 12 months, outperforming the average fund in its category, which rose 10.94%. The Principal fund, launched in November 2016, has climbed 13.65% over the past three years and 13.00% over the past five.
“Principal MidCap’s strong team and time-tested approach make it a promising long-term holding. However, the strategy is closed to most new investors. Manager Bill Nolin and his group are in fine form. Nolin launched this strategy in separate accounts in 1999 and has shepherded it to become one of the best—and biggest—mid-cap growth strategies. He and comanager Tom Rozycki set the tone here, with Nolin defining the investment culture and Rozycki serving as a crucial gatekeeper and sounding board for the analyst team.
“Nolin named his team Aligned Investors in a nod to a key element of this strategy. In his view, good businesses often have owner-operators—or management teams with that mindset. Such leaders tend to make operational and capital-allocation decisions for the long run because their interests are usually better aligned with those of shareholders.
“Nolin looks to invest only in stocks trading at sizable discounts to his team’s estimates of their fair value … Despite running nearly $35 billion in total assets and building an atypical mid-cap growth portfolio that tends to be heavy on financials (think asset managers and insurers rather than banks) and light on technology, Nolin has delivered for investors. And there’s reason to think that can continue. Nolin is well entrenched at Principal, and he and Rozycki have picked a good team to keep this strategy promising and potent well into the future.”
—Tony Thomas, associate director
Touchstone Mid Cap Growth Fund
- Morningstar Medalist Rating: Bronze
- Morningstar Rating: ★★★★
Over the past 12 months, this $1.4 billion fund has gained 18.51%, while the average fund in its category is up 10.94%. The Touchstone Investments fund, launched in February 2020, has climbed 11.48% over the past three years and 10.62% over the past five.
“Westfield Capital Management, an investment boutique that has been the fund’s sole subadvisor since March 2011, has struggled to retain senior talent in recent years. The team, currently 18 strong, has in the past five years seen five departures that included three investment committee members as well as two senior analysts who covered consumer and financials stocks. The team has added five analysts during the same period (including one who returned to the firm after a brief stint outside the industry), but most of them are less experienced than those who left.
“Despite changes to the team, the sensible growth-at-a-reasonable-price approach remains. The team looks for firms with accelerating earnings and enough cash flow to fund growth, while also minding valuations. Sector weightings stick close to those of the Russell Midcap Growth Index to let stock-picking lead the way, but the team can make industry bets and has tilted to biotechnology and software in recent years. Letting winners grow from mid- to large-cap status also gave the portfolio a larger-cap tilt versus mid-growth Morningstar Category peers and the index.
“Results during Westfield’s exclusive control have been mixed. From March 2011 through May 2024, the strategy’s A share’s total and risk-adjusted returns (measured by Sharpe and Sortino ratios) beat the average category peer but lagged the Russell Midcap Growth Index owing largely to dismal results in 2011, after which Westfield bolstered risk management … On balance, the strength of the approach here makes for a reasonable mid-growth option at the right price.”
—Eric Schultz, analyst
Vanguard Mid-Cap Growth Index Fund
- Morningstar Medalist Rating: Silver
- Morningstar Rating: ★★★★
This $27.4 billion fund has climbed 18.87% over the past 12 months, outperforming the average fund in its category, which rose 10.94%. The Vanguard fund, launched in August 2006, has climbed 12.11% over the past three years and 11.21% over the past five.
“Vanguard Mid-Cap Growth Index provides a market-cap-weighted portfolio of the highest-growth companies in the mid-cap market. Its broad diversification and razor-thin expense ratio make it a compelling option. The fund tracks the CRSP US Mid Cap Growth Index, which captures the faster-growing side of the mid-cap market. Investor sentiment around their superior growth prospects tends to drive the high valuations of these stocks.
“The portfolio’s sector complexion largely resembles the Morningstar Category with a handful of differences … Buffer rules around the fund’s size constraints coupled with market-cap-weighting allow it to capitalize on strong performance in its largest stocks. Index fund peers without these rules may be forced to sell the stocks sooner, realizing less of their gain. Generous buffer rules let them grow with fewer restrictions, and market-cap-weighting gives them greater prominence. Larger stocks like Arista Networks, Fortinet, and Cintas contributed greatly to the fund’s long-term outperformance. The fund outpaced its average peer by 74 basis points annualized since it started following its current benchmark in April 2013 through November 2024.”
—Zachary Evens, analyst
This article was generated with the help of automation and reviewed by Morningstar editors.
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