Mid-cap exchange traded funds (ETFs) just might be the Goldilocks investment – not too big, not too small, but just right.
Mid-caps have a tendency to get lost in the shuffle. After all, they’re not the in-your-face global behemoths that large-caps tend to be. They’re also not the hot new company full of promise, but just starting out. Still, there are reasons to consider their attributes in your clients’ portfolios.
What Are Mid-Caps?
Mid-caps include companies with market capitalization ranging from $2 billion to $10 billion, though the definition of “mid-cap” varies by index provider. Growth-type companies, with stronger revenue and earnings, dominate this asset class.
Mid-caps have less risk and lower volatility than small-caps, making them appealing in tough and uncertain economic times. That said, they also can be appealing for the risk-averse investor looking for slightly more growth than can be expected from firmly established large-cap corporations. Some say that they’re the best of both worlds, combining the potential for growth that smaller companies have with the financial standing of a large company.
During a more subdued recovery, mid-caps may be in a better position to adapt. Like small-caps, their smaller size makes them nimble Research has shown that mid-caps tend to outperform as they capitalize on the assets of their smaller ailing competitors as an economy improves.
Furthermore, mid-cap stocks have historically provided better returns than large-cap companies in the long run.