With large-cap equities riding a 2023 market rally, the strength is spilling over into small-caps as well. Investors who want to combine the best of both worlds, however, have options in mid-cap equities.
Big tech names like Apple, Microsoft, and Google spearhead the current market rally, which makes large-cap equities the default play for a 2023 comeback after a bearish 2022. As the market rally gets longer in the tooth, however, that strength could morph into small-cap outperformance, especially with history on its side.
Though small-cap performance as of late hasn’t been matching its large-cap brethren in the decade-long bull market, history says upside is on the way.
“The negative reputation of small caps among many advisors is historically undeserved,” a Financial Advisor report said. “Though the Russell 2000 underperformed large caps over the last half of the long bull market, the index has had a rolling three-year average return of nearly 10% since inception in 1979.”
For investors who are hesitant to assume the higher risk of small-caps, mid-caps can offer a healthier median. They provide the stability of large-cap organizations along with the growth prospects of small-caps.
An Active Mid-Cap ETF Option
Given the potential of mid-cap performance, one fund to consider for active 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.
Rather than add a large basket of mid-cap names, MID offers a more discerning screener for inclusion in its portfolio holdings. It has 27 holdings as of May 31, spread across various sectors such as information technology, healthcare, consumer discretionary, industrials, and others.
For investors also looking to add an environmental, social, and governance (ESG) component into their investing mix, MID offers a compelling option. Its active management strategy means the fund employs market professionals that can adjust the portfolio holdings as necessary when market conditions warrant a change.
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