Investors are often warned off funds that invest outside the large cap space, but our research shows that the volatility of these funds is not as high as may be expected, while the returns are outstanding.
The FTSE 100 index has recorded an annualised volatility of 14.78 per cent over the past 10 years and has returned 93.87 per cent to investors in this time.
Meanwhile the FTSE 250 had a slightly higher volatility of 18.29 per cent over the period, but has more than doubled the gains of the FTSE 100, returning 212.05 per cent to investors.
Performance of indices over 10-yrs
Source: FE Analytics
Here are five mid cap funds that investors may wish to consider:
Franklin UK Mid Cap
This is the best-performing fund in the IMA UK All Companies sector over 10 years, according to data from FE Analytics, returning 345.83 per cent to investors during that time.
FE Alpha Manager Paul Spencer has run the portfolio since 2006 and it appears in the top quartile for returns over every time period since then, from five years down to one month.
Performance of fund vs sector and benchmark over 5-yrs
Source: FE Analytics
The fund’s volatility of 18.6 per cent is in the sector's upper end, but our data shows holding the fund is well worth the risk.
The Sharpe ratio measures the risk-adjusted returns of a fund versus a benchmark, with a higher score meaning each unit of risk taken on has a higher payoff for investors.
Franklin UK Mid Cap’s Sharpe ratio of 0.29 is the seventh best out of 256 funds in the sector.
The minimum investment for the fund is £1,000 and the total expense ratio (TER) is 1.58 per cent.
F&C UK Mid Cap
Launched in 2005, this five crown-rated fund is a top-10 performer in the sector over 10 years and is in the top quartile over one and three years.
Since 2008 the fund has been managed by Michael Ulrich, who attributes roughly 2.5 per cent of the fund to each holding and will not buy a stock until he sells another.
Ulrich says he avoids taking bets on the macro-economic outlook, but instead prefers to focus on analysing a company’s future earnings potential.
Another portfolio with a top-10 Sharpe ratio, the fund has a minimum investment of £1,000 and a TER of 1.59 per cent.
Aberdeen UK Mid Cap
Aberdeen Asset Management is better known for its emerging markets funds, but this portfolio, run by the pan-European equities team, is a top-quartile performer over one, three and 10 years.
Over five years the fund has made just 11.39 per cent, putting it in the second quartile and dragging it below its FTSE 250 benchmark.
This can be explained by its dreadful performance in 2008, when it was down 40.58 per cent in the calendar year, compared with a loss of 38.42 per cent from the FTSE 250.
Performance of fund vs sector and benchmark over 5-yrs
Source: FE Analytics
The fund’s max drawdown in the past five years – the amount investors could have lost if they had bought and sold at the worst possible moments – is 53.05 per cent, putting it in the lowest quartile in the sector.
The minimum investment is £500 and the TER is 1.63 per cent.
Royal London UK Mid-Cap Growth
This is another fund with a track record of consistent top-quartile performance. Since launch in 2006 it is the fifth-best performer in IMA UK All Companies.
It has the fourth-highest Sharpe ratio of any fund in its sector over the past five years.
Derek Mitchell, who has managed the fund since August 2009, is unafraid to invest in the notoriously volatile oil and gas sector.
The fund's performance was hit in July by the near halving of the share price of fossil-fuel exploration company Rockhopper.
However it has nonetheless doubled the returns of the average IMA UK All Companies fund in the year-to-date, gaining 20.32 per cent.
The fund has a minimum investment of £1,000 and a TER of 1.44 per cent.
Neptune UK Mid Cap
Five crown-rated Neptune UK Mid Cap was launched in December 2008 with FE Alpha Manager Mark Martin at the helm.
Its strong performance has seen it grow to eight times its size since January, although at £12.7m it is still extremely small for the sector.
Performance of fund vs sector and benchmark since launch
Source: FE Analytics
It has a minimum investment of £1,000 and the highest TER of all the funds on this list, at 2 per cent.