Midcap mutual funds may not attract the same kind of attention as their smaller and larger siblings, but they have stacked up nicely this year when it comes to returns.

The average midcap fund has performed better than the average small- or large-cap fund so far this year, according to Standard & Poor s. As of Aug. 6, the average midcap blend fund stood up 4.7% on an annualized basis, compared with gains of 4.4% and 0.2% for the average comparable small- and large-cap funds.

What makes them appealing is that they obviously still have growth prospects in the companies in the space, says Todd Rosenbluth, mutual fund analyst at Standard & Poor s Equity. They re not bellwethers, like IBM or Cisco, etc., where it s a lot harder to move the needle in terms of growth.

Predictably, the companies in a midcap fund vary with its objectives. The average holding in a midcap blend fund has a $7.3 billion market capitalization, according to S&P. (For growth funds, it s a bit smaller, and for value funds, a bit larger.) Small-cap blend fund holdings average a market cap of $1.8 billion, and companies in large-cap blends average a market cap of about $72 billion.

On a risk basis, midcaps funds are right where you might expect them to be: less volatile than small-caps and more risky than large-caps.

We re more likely to see companies that have stronger balance sheets, but that can also either pay a dividend and have consistency with earnings in midcaps than in small caps, Rosenbluth says. As a result they can hold up better in more volatile times than small caps.

Overall, the stocks in a midcap fund may be slightly more expensive than average. The average price-to-earnings ratio of a stock in the S&P 500 midcap 400 index was trading at 18 times earnings as of Aug. 6, when the average price-to-earnings ratio for the S&P 500 was 13.5.

Investors are paying more for midcap stocks because they tend to have stronger growth prospects in terms of earnings capabilities, Rosenbluth says. You have to weigh those together.

As for fees, the average midcap blend fund has an expense ratio of 1.4%, compared with 1.5% for small caps and 1.3% for large caps.

In this week s Fund Screen, SmartMoney looked at top performing midcap funds. We narrowed the field to those that were in the top 10% of their peer group for the year to date and the trailing three- and five-year periods; received at least a five-star from Morningstar or Standard & Poor s; and kept their annual expenses nominal. We were left with three a value, a blend and a growth fund.

The Principal MidCap Blend Institutional is the best performer so far this year. The fund differs from its sibling Principal Large Cap Value in that it doesn t rely on quantitative models as significantly. The fund is also not tethered to its index as closely as Large Cap Value or other related funds, so the mangers are capable of over- or underweighting sectors where they see opportunities, writes Morningstar analyst David Kathman. The fund has benefitted from the performance of two of its top three holdings, O Reilly Automotive and Liberty Media Corp Capital Shares A, which have returned 23% and 99% year to date. The A share class of the Principal MidCap Blend fund has a four-star rating from Morningstar and a five-star rating from S&P, and is less expensive than its peers, with a 1.23% expense ratio.

Another product that made the list, midcap value fund Nicholas Equity Income, pays a good dividend, is inexpensive and has a record of outperformance, Rosenbluth says. It s also not a pure midcap fund. Although the fund surfaced in a screen of midcaps in the Morningstar universe, its largest holding is Phillip Morris International, which has a market cap of $95 billion. The fund, which is 86% invested in U.S. stocks, also has holdings like Pfizer and Abbott.

The third fund picked up by the screen is mid-cap growth fund, Westcore Select, which has a five-star rating from Morningstar and a four-star rating from Standard & Poor s. The fund has outperformed, and with an expense ratio of 1.15, it s less expensive than the average fund in its peer group. The fund s top two holdings Rovi and Bank of the Ozarks have returned 31% and 27%, respectively, year to date. One red flag is the fund s high turnover rate, which can create tax headaches, depending on how the fund is owned.

The Criteria: The funds on the table have a minimum investment of $5,000 or less. They're open to new money and charge an annual expense ratio no greater than 1.5%. In addition, their performance track records were in the top 10% year-to-date and over the trailing three- and five-year time periods for their peer group. All have five-star ratings from Morningstar, and as usual, we did not include load funds.

Fund Name	Ticker	Assets (In Millions)	YTD Return (%)	1-Yr Return (%)	5-Yr Return (%)	Expense Ratio
Nicholas Equity Income I	NSEIX	77	4.70	19.56	5.58	0.90
Principal MidCap Blend Institutional	PCBIX	1108	4.84	18.46	3.64	0.69
Westcore Select	WTSLX	173	4.77	23.50	7.17	1.15

Source: Morningstar
Data as of Aug. 12, 2010