DF Dent Midcap Growth Should Rebound

green arrow showing man bouncing off trampoline

(Image credit: Getty Images)

In the middle of 2020, DF Dent Midcap Growth (DFDMX) was one of the best-performing diversified U.S. stock funds in the Kiplinger 25. Back then, its 12-month return handily beat the broad market, as measured by the S&P 500. The fund held up even better than the index in the pandemic-driven bear market.

But over the past 12 months, the 20.8% gain in DF Dent Midcap Growth, although solid, trailed 84% of its peers (funds that invest in midsize, growing companies). It lagged the S&P 500, too, as well as its benchmark, the Russell Mid Cap Growth Index. The fund favors high-quality, growing companies, but in late 2020, investors began to favor low-quality firms trading at bargain prices.

DF Dent Midcap Growth's limited exposure to tech stocks relative to its benchmark was also an issue. The fund tends to hold roughly one-fourth of its assets in tech stocks; the tech-stock weighting in the Russell Mid Cap Growth Index topped 40% at its peak.

From just $107.88 $24.99 for Kiplinger Personal Finance

Become a smarter, better informed investor. Subscribe from just ~~$107.88~~ $24.99, plus get up to 4 Special Issues

CLICK FOR FREE ISSUE

https://cdn.mos.cms.futurecdn.net/flexiimages/y99mlvgqmn1763972420.png

Sign up for Kiplinger’s Free Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

"While our tech stocks have done very well over the past three years, we have been trimming our positions due to higher valuations. We think that is prudent risk management," says fund comanager Bruce Kennedy. The fund managers pared stakes in software firms Ansys (ANSS) and BlackLine (BL), among others.

Kennedy and comanagers Matthew Dent, Gary Mitchell and Thomas O'Neil work to find 30 to 40 growing midsize businesses that generate large amounts of cash, dominate a niche in their industry, and have talented and ethical executives. They wait for a stock to trade at the right price relative to its expected risk-adjusted return before buying. Among the fund's top holdings are real estate investment trust SBA Communications (SBAC) and Vulcan Materials (VMC), which makes construction products such as crushed stone.

Over longer stretches, this process has delivered consistent, market-beating returns. In each of the past three-, five- and 10-year periods, for instance, DF Dent Midcap Growth has posted annualized returns that outpace the typical mid-cap growth fund, the Russell Mid Cap Index and the S&P 500. That's a compelling sign that the fund will soon shine again.

5 High-Yield Mutual Funds With a Human Touch

Nellie joined Kiplinger in August 2011 after a seven-year stint in Hong Kong. There, she worked for the Wall Street Journal Asia, where as lifestyle editor, she launched and edited Scene Asia, an online guide to food, wine, entertainment and the arts in Asia. Prior to that, she was an editor at Weekend Journal, the Friday lifestyle section of the Wall Street Journal Asia. Kiplinger isn't Nellie's first foray into personal finance: She has also worked at SmartMoney (rising from fact-checker to senior writer), and she was a senior editor at Money.