While there appears to be excess return associated with small- and mid-cap stocks vs. large caps in the ETF proxies above, the premia has been fading lately. Note too that the small- and mid-cap premia have been roughly equivalent over the last ten years but the small-cap version is considerably more volatile. That’s a sign that mid-caps appear to offer a premium on par with small-caps with less risk.

Is that a free lunch? Probably not, or at least it’s premature to proclaim as much based on the numbers above. Looking for convincing evidence of a mid-cap premium requires deeper analysis, perhaps across a range of ETFs and different indexes. Indeed, one of the factors that’s warm and fuzzy in mid-cap analysis is defining terms. Professor French, for instance, targets the middle 40% of capitalization deciles as a measure of mid cap. That’s a reasonable definition, but it’s not obvious that’s its optimal. The obvious question: how would different definitions fare?

Definitions can have a big impact in the mid-cap space. Consider the trailing 1-year return for the Schwab US Mid-Cap ETF (SCHM) vs. the iShares Russell Mid-Cap (IWR). The Schwab fund’s ahead by 6.69% for the year through yesterday (Oct. 28)—a solid edge of more than 200 basis points over IWR’s 4.53% increase for the trailing 12-month period, according to Morningstar.com. Why the difference? The choice of the target index probably plays a role. IWR’s tracking the Dow Jones U.S. Mid-Cap Total Stock Market Index vs. the Russell Mid-Cap for IWR.

The bottom line: the details matter in mid-cap land, perhaps a lot. That’s another way of saying that if you torture the concept of mid-cap investing long enough, you can force it to say almost anything you want. That doesn’t mean we should steer clear, although it’s essential to go in with eyes wide open.