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The Vanguard Selected Value Fund is more than worth its steep minimum, but investors needing a lower entry point might try a similar ETF instead, writes Daniel Wiener, editor of the Independent Adviser for Vanguard Investors .

I like mid-caps; always have. The mid-cap arena is attractive because Wall Street tends to focus on large caps. And while small caps can be rocket ships, they can also flame out.

By the time a small company graduates to a mid-cap, it’s a good bet that management is seasoned and its market share is significant.

In the mid-cap arena, I’m a fan of the Vanguard Selected Value Fund (VASVX). Jim Barrow and Mark Giambrone still manage the bulk of this value fund’s portfolio, and do a fine job of it.

The fund got through the bear market in better shape than its mid-cap value index competitors, though it has underperformed on the upside. Chalk that up to Barrow’s long-standing distaste for REITs of all stripes.

The managers tend to put together a fairly concentrated portfolio of their best ideas and stick with them, trading around the edges until an even better idea comes along. Low price/earnings ratios and decent yields tend to catch their eye, along with strong balance sheets and the potential for some catalyst to drive a company’s shares ahead of the market over time.

[The fund is up almost 4% year to date, middle of the pack for its category. The top three holdings as of December 31—Yamana Gold (YRI), Goodrich (GR), and Murphy Oil (MUR)—are down modestly on the year. However, the next three similarly weighted stakes, Stanley Black & Decker (SWK), Capital One Financial (COF), and Coventry Health Care (CVH), have gained a minimum of 12.8% in 2011—Editor.]

On an absolute basis, Selected Value had a terrific 2010—up 19.4%—though it did lag the index benchmark. Still, when you can find good managers like Barrow and Giambrone, there’s little reason to switch. Obviously, the $25,000 minimum for the fund makes investing small amounts here difficult.

In that case, use the Vanguard Mid-Cap Value ETF (VOE). This ETF, or rather its MSCI MidCap 450 Value Index bogey, has tended to outperform the S&P MidCap 400 Value index—in large measure because of a healthy weighting towards REITs.

Indeed, this is pretty much the only reason the index has recently been outpacing my preferred mid-cap value fund, Vanguard Selected Value.

But outperformance can come at a cost, and the ETF tends to be a good bit more volatile than the active fund.

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