While large-cap value stocks might be getting most of the attention this year amid inflation and now recession fears, it’s easy to overlook the performance of their smaller-cap brethren, such as mid-cap stocks.
“Stocks of high-quality companies with small and midsize market capitalizations have been on a tear this year,” wrote Lauren Solberg in Morningstar. “And for now, several such companies with lasting competitive advantages are still trading at steep discounts.”
Mid-cap stocks can be more susceptible to market movements, so if the recession narrative flames out, there could be potential for plenty of upside to come. Right now, mid-caps are benefiting from the summer market rally after a tenuous first half of 2022 that saw heavy volatility amid inflation fears.
“The Morningstar US Small-Mid Cap Moat Focus Index is 9.8 percentage points ahead of the broader market, as measured by the Morningstar US Market Index, this year as of Aug. 22,” Solberg added. “These stocks, which all trade with attractive valuations and durable competitive advantages, from the small- and mid-cap corners of the market are trading at 75% of their analyst-assessed fair value estimates, while the Morningstar US Market Index’s valuation is fairly valued on balance.”
More often than not, mid-caps are seen as the sweet spot between achieving the growth-like gains of small-caps and the quality of large-caps. Investors who are not privy to the mid-cap arena can always opt for an actively managed strategy if they have reservations.
One of the resounding benefits of mid-caps is their performance over past years. Given the market uncertainty, large-caps might be the default move, but mid-caps can also capture the upside of small-caps without the added risk or volatility.
An Active ETF Option in Mid-Caps
One fund to consider for actively managed mid-cap exposure is the American Century Mid Cap Growth Impact ETF (MID). The fund seeks to invest in mid-cap companies that generate or could generate social and environmental impact alongside of financial return.
Uses proprietary fundamental research to:
- Identify mid-cap stocks managers believe will increase in value over time.
- Identify companies that, according to the United Nations Sustainable Development Goals (SDG), generate, or could generate, ESG impact alongside a financial return.
For more news, information, and strategy, visit the Core Strategies Channel.
