For the greater part of the year, large-cap stocks have been in pole position for most of the 2023 rally. But investors who want to add a dose of growth while maintaining large-cap stability may want to give midcap equities a closer look. Currently, they’re offering investors incredible value per dollar.
A focus on small-caps can provide added growth, but as mentioned, midcaps strike the perfect balance between growth and quality. While investors have been piling into large-cap stocks, mainly in the tech sector, midcaps present a compelling option as optimism floods the capital markets in 2024 with the expectation of rate cuts.
“That’s because small- and midsize-company stocks have two important factors working in their favor,” CNBC noted. “For one, because investors have been so busy bidding up the price of the market’s biggest stocks, the smaller ones can currently be purchased at a relative bargain.”
Additionally, the historical performance of smaller-cap names have been strong performers when looking at the long-term investment horizon. The CNBC report added that “over the course of market history, smaller names have tended to outperform larger stocks over long periods.”
A Continued Rally in 2024 Could See Midcaps Leapfrog Large-Caps
A continued rally in 2024 could see small- and midcaps surpassing their large-cap counterparts if the Fed holds true to loosening monetary policy in the new year. The expectation of rate cuts should pave the way for investors to take on riskier names in the small- and midcap space.
“There’s no question it’s a fantastic time to be diversifying into small- and mid-caps right now,” said Greg Marcus, managing director at UBS Private Wealth Management.
Speaking again to value, the report noted that small- and mid-cap indexes are trading at 14 times their estimated earnings for 2024 versus 20 for the S&P 500. In other words, the former are trading at a 30% discount, offering value-oriented investors plenty of opportunities.
An Active Midcap Option
Rather than dive into an ocean of midcap stocks and select names themselves, there’s an easier option via the American Century Mid Cap Growth Impact ETF (MID). Furthermore, for investors wanting an even more discerning screener of identifying companies with an environmental, social, and governance (ESG) component into their investing mix, the fund presents 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. At a 0.45% expense ratio, the fund concentrates its exposure to 30 holdings (as of Nov. 30), emphasizing growth-oriented opportunities in the midcap market.
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