“It becomes harder for companies to post the same growth rate as they get bigger,” Schmidt told the WSJ. “That’s why small-caps typically have higher earnings estimates, because we expect higher growth out of them.”
Over a long-term horizon, though, mid-caps have outshined the competition. Since 1996, the S&P MidCap 400 generated an average annual return of 10.4%, compared to 7.3% for the S&P 500 and 9.7% for the SmallCap 600.
“You’re certainly getting a better risk-adjusted return in the midcap space than in large or small when you factor in both volatility as well as long-term returns,” Ryan Kelley, portfolio manager at Hennessy Funds, told the WSJ.
For more information on middle capitalization stocks, visit our mid-cap category.