The markets gave us a good ride in the third quarter as the S&P 500 turned in its best September performance in decades. But it’s important to remember that domestic economic growth is likely to be lackluster for some time. In such an environment it’s imperative to maintain exposure to steady, slow-growth companies that will turn in good results quarter after quarter, regardless of the state of the broad economy.

While rising markets can make for exciting times, slow and steady is generally what generates returns. American Century Mid Cap Value (ACMVX) is one steady Eddie that will reward investors over the long term.

Working with a small in-house team of analysts, the fund’s three-man management team of Philip Davidson, Michael Liss and Kevin Toney winnow down a universe of about 1,500 mid-sized firms to a more manageable 500 names. They focus only on companies that fall within the least-expensive third of the group as measured by valuation metrics such as price-to-earnings and price-to-cash flow.

One of the team’s favorite metrics is return on capital (ROC), a company’s earnings divided by total equity and debt. That measure gives investors a good idea of where a business lies in the economic cycle and whether it’s making the best use of investors’ capital.

Companies that don’t enjoy dominant market shares are eliminated from consideration. These companies lack pricing power and are susceptible to downturns in their industry or the broad economy. Given the value focus of the fund and its initial screening criteria, management tends to find opportunities in beleaguered businesses and industries.

The next step in the investment process is determining which companies can maintain their dominant market position while getting earnings back on track. The managers purchase those with the best risk-to-reward profiles and those trading well below estimated fair value with solid prospects for an earnings rebound.

The fund’s heaviest weightings are in financials, industrial materials and consumer goods. This investment strategy could be considered quite risky in the current economic environment, but management has focused on high-quality names that mitigate risk.

The fund’s holdings in the financial sector primarily focus on trust banks such as Northern Trust (NSDQ: NTRS), which generates high levels of fee income, as well as insurance outfits such as Chubb Corp (NYSE: CB) and ACE (NYSE: ACE), which offer specialty insurance products that face little competition.

The fund’s consumer-focused holdings are dominated by names that tend to perform well throughout the economic cycle. Kimberly-Clark Corp (NYSE: KMB) and ConAgra Foods (NYSE: CAG) are two such holdings.

Management executes its strategy extremely well on a long-term basis, which is hardly surprising given their deep well of experience. Davidson has been part of American Century Mid Cap Value’s management team since its inception in 2004 and has followed similar strategy with a large cap value fund, American Century Value (TWADX), since 1993.

Management adopts a cautious approach to evaluating balance sheets, and their investments tend to lag the markets in boom cycles and hold up better in busts. That can create swings in the fund’s year-to-year performance; in a given year American Century Mid Cap Value can rank at the top or the bottom of its category, or anywhere in between. However, the fund’s trailing three-year and five-year total returns place it in the top 8 percent and 6 percent of its category, respectively.

One of the fund’s drawbacks is that it’s not particularly tax efficient. Although stocks tend to stay in the portfolio for several years, management usually scales in and out of positions incrementally as stocks hit their price targets. That trading activity tends to generate capital gains distributions.

Another potential issue with that level of trading is that it tends to raise incremental costs, potentially eating away at returns. It’s probably best to hold American Century Mid Cap Value in tax-advantaged accounts such as IRAs.

The fund stacks up well when one considers its expenses. With an annual expense ratio of 1 percent, it’s neither too expensive nor particularly cheap. Given the value that management adds, 1 percent seems fair.

American Century Mid Cap Value isn’t a fund that will generate a lot of excitement on the upside, but it will provide a nice cushion when markets fall. It’s best as a long-term portfolio holding because it realizes benefits after a full business cycle.