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Additionally, Dan and I feel the

somewhat larger companies in MidCap

Index’s portfolio make it a better fit

for the lower-risk orientation of the

Income Model

. At the end of the day,

both are strong all-around options for

getting exposure to the companies in

the middle of the stock market’s capi-

talization range.

MidCap Value Index,

Hold

S&P MidCap 400 Value ETF,

Buy

Selected Value

was once our pre-

ferred way to invest in higher-yield,

low price-to-earnings companies in the

mid-cap range of the market; how-

ever, the addition of two sub-advisers

to the original fund has watered down

the stock-picking skills of Jim Barrow

and Mark Giambrone. Dan and I now

recommend

S&P MidCap 400 Value

ETF

across all the

Model Portfolios

a way to access this part of the market.

Again, the CRSP-based index has

historically lagged mid-cap value

indexes from other providers. As with

the growth and broader mid-cap ver-

sions, the portfolio selected by the com-

mittee at S&P is different than the port-

folio built by the computers at CRSP.

In sum, when it comes to indexing

mid-sized companies, I tend to prefer

the S&P-based indexes. Now, let’s turn

to active management.

Capital Opportunity

Buy.

Yes, I discussed

Capital Oppor-

tunity

in the roundup on aggressive

funds in the September newsletter. As

I explained then (and I apologize if you

are tired of hearing this), since bulking

up in size, Capital Opportunity simply

hasn’t been as aggressive as it once was.

Though all but one of its top holdings

can also be found its larger-cap brothers,

PRIMECAP

and

PRIMECAP Core

Capital Opportunity is still run with an

eye toward owning some smaller stocks.

The median company here has a market

size of about $40 billion, versus $69 and

$50 billion for its siblings. That’s big

compared to most of Vanguard’s mid-

cap funds—it’s over eight times the size

of the median stock in S&P MidCap

400 ETF—but it’s small compared to

large-cap funds. Capital Opportunity

lands somewhere in between large- and

mid-caps.

Capital Opportunity remains a top-

notch fund. I hope you have followed

Dan’s and my repeated advice over the

years to partner with the PRIMECAP

Management team—if there’s one fund

or series of funds where the “buy the

manager” mantra really holds sway,

it’s the PRIMECAP family of funds.

The best way for new investors to

access them is through

PRIMECAP

Odyssey Growth

(POGRX). Given that

health care has been lagging this year,

and accounts for a quarter to a third

of every PRIMECAP portfolio, now

is a great time to be looking to add to

your PRIMECAP-run funds. Periods of

underperformance by the PRIMECAP

team have historically been followed by

periods of significant outperformance.

Capital Value

Buy.

Capital Value

has run from

below freezing to super-hot, and

everything in between. The fund has

also been a moving target, now on its

fifth manager iteration since its 2001

Actively Covering Mid-Cap Stocks

Capital Opportunity

Capital Value

MidCap Growth

Selected Value

Strategic Equity

Number of Stocks

135

121

119

398

P/E

24.1

28.0

26.8

20.5

17.0

P/Book

3.6

1.7

3.1

1.7

2.3

Median Mkt. Cap. (billions)

$39.2

$26.7

$9.3

$4.2

Foreign

10.8%

9.8%

0.8%

10.6%

0.9%

Cash

3.0%

1.3%

4.0%

0.8%

0.0%

Sector Allocation

Consumer Discretionary

9.4%

7.9%

21.0%

15.2%

14.5%

Consumer Staples

0.0%

1.2%

3.1%

4.5%

Energy

0.6%

13.6%

2.5%

7.9%

5.2%

Financials

3.9%

22.3%

14.6%

26.3%

13.5%

Health Care

33.1%

14.9%

17.1%

4.4%

10.0%

Industrials

16.8%

8.0%

9.0%

16.1%

14.3%

Information Technology

34.0%

11.2%

26.3%

11.2%

16.4%

Materials

1.8%

5.7%

3.1%

7.5%

6.3%

Real Estate

0.0%

6.7%

1.7%

3.5%

9.2%

Telecommunication

0.4%

1.6%

1.5%

0.1%

0.9%

Utilities

0.0%

6.0%

0.1%

4.7%

5.2%

Top 10

36%

25%

20%

19%

Biogen

MetLife

MGM Resorts Int’l

Willis Towers Watson

Regions Financial

Amgen

Citigroup

Popular Stanley Black & Decker

Entergy

Eli Lilly PNC Financial Svc. Group

Brunswick Royal Caribbean Cruises

CR Bard

Alphabet Principal Financial Group

Centene

Kinross Gold

Best Buy

BioMarin Pharmaceutical Raymond James Financial BioMarin Pharmaceutical

Cigna

Hologic

Southwest Airlines

Cisco Systems

Vantiv

Micron Technology

FirstEnergy

FedEx

American Tower

SEI Investments

AerCap Holdings NV

Masco

Roche Holding AG

Mylan NV

Agilent Technologies

Owens Corning Advanced Micro Devices

NVIDIA

Anadarko Petroleum Intercontinental Exchange

Hanesbrands Quintiles Transnational

Adobe Systems

CSX

CoStar Group Capital One Financial

Computer Sciences