Taking the Middle Ground
The Northern Multi-Manager Mid Cap Fund Looks for Medium-sized Companies With Big Futures

April 2010

Like the precocious middle child who quietly goes about their business, the mid-cap sector of the U.S. stock market is sometimes overshadowed by its higher-profile siblings.

“Medium-sized companies don’t get as much attention, but their long-term performance has been impressive,” says Jessica Hart, co-portfolio manager of the Northern Multi-Manager Mid Cap Fund.

Clearly, overshadowed hasn’t meant being outdone.

Since 1995, the S&P MidCap 400 has beaten the S&P SmallCap 600 by an average of about two percentage points per year and the large-cap S&P 500 by four percentage points, excluding dividends, according to Standard & Poor’s, as of March 23, 2010.

Sweet spot
Hart lists several reasons for the strong record of mid-cap stocks, which have market values of roughly $1 billion to $10 billion.

“Mid-caps often are in the sweet spot,” she says. “They’re small enough to provide growth potential yet big enough to offer some stability.”

Hart notes that medium-sized businesses can benefit from mergers and acquisitions activity, which has started to heat up. Private equity firms and large companies trying to boost their growth rates like to shop for acquisitions in the mid-cap aisle of the market.

With the recovery seemingly past its speculative phase, mid-caps also could gain from a renewed preference for quality.

“We’re at the stage of the bull market where stock prices are driven less by speculation and more by fundamentals,” Hart says. “That could push investors towards the mid-cap group.”

Growth and value
While most mid-cap mutual funds employ a single investment strategy, the Northern Multi-Manager Mid Cap Fund takes it three steps further.

Fund assets are divided among four sub-advisers vetted from among thousands of their peers on the basis of risk-adjusted performance, disciplined and consistent investment process, and unwavering compliance.

These four investment styles—relative and deep value plus conservative and aggressive growth—are assembled in proportions that extensive back-testing suggests could generate market-beating returns but with less volatility.

“We’ve been putting together multi-manager portfolios for over 30 years,” Hart says, “and the mid-cap sector has been a particularly fertile area for skilled stock-pickers.”

Even if their stocks don’t get as much attention.

Past performance is no guarantee of future results.

Equity Risk: Equity securities (stocks) are more volatile and carry more risk than other forms of investments, including investments in high-grade fixed income securities. The net asset value per share of this Fund will fluctuate as the value of the securities in the portfolio changes.

Mid Cap Risk: Mid-capitalization stocks typically carry additional risk, since smaller companies generally have higher risk of failure and, historically, their stocks have experienced a greater degree of volatility.

It is not possible to invest directly in an index.

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