Middle Game

If you're reluctant to brave the small-cap minefield, there is an alternative: funds that focus on midsize companies. The rationale is that these businesses--capitalized at $500 million to $6 billion--have already made it through the risky small-cap phase but haven't grown so huge that growth has slowed. "We pick them up when they are heading for their next stage of growth," says Christopher McHugh, who manages TIP: Turner Midcap Growth Fund.

Only 18 months old, McHugh's $23 million no-load fund has gained 40% in the 12 months ended June 19, putting it in the top 3% of funds in its category--and well ahead of the Standard & Poor's 500 stock index (up 24%) and the Russell Midcap Growth Index (up 19%). McHugh limits risk by diversifying across sectors, always keeping the same broad sector weightings as his midcap benchmark. He also stays fully invested and keeps about 100 stocks in his portfolio.

With 17% of its assets in technology, the fund has loaded up on Net names, such as Amazon.com, Yahoo!, Excite!, Lycos, and SportsLine USA. Several are stocks that got too large for Turner's small-cap fund. Strong same-store sales stats in April and May also drew McHugh to retailers, such as Abercrombie & Fitch, Linens 'n Things, and Dollar Tree Stores.