The market narrative has moved on from the election to the season’s latest rate cut. Now, with the year in its final stages and investors looking to reshuffle portfolios, surprising equity segments may be rising into view. Midcaps, for example, may be positioned well between small- and large-cap offerings. The rate environment may be better poised for those firms than smaller names, with large caps perhaps overweighted.
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With rates now down 75 basis points (bps), and potentially more next year, the market narrative is shifting. A soft landing in which inflation cools and borrowing gets cheaper may eventually benefit small caps. However, midcaps may be better positioned to take advantage, using larger balance sheets, for example, to more quickly move to take advantage of cuts.
Are Midcaps the Call to End 2024?
One other possibility looms for midcaps, too, in M&A. While smaller firms are easier to acquire, the behemoth firms that dominate the stock market — and their fellow large caps — may find medium-sized firms more intriguing given the scale they can offer.
The Avantis U.S. Mid Cap Equity ETF (AVMC) can offer exposure to the category with its active approach. The fund applies fundamental criteria to midcaps, actively investing in firms across multiple sectors. AVMC assesses firms based on factors like book value, accruals, and shares outstanding. Looking at midcap firms specifically, it looks for firms with higher profitability and value characteristics.
Charging 18 bps, the strategy has returned 14.8% YTD, against its benchmark’s 14% return. Per YCharts data, the fund has also recently sent a new buy signal. Its price of $67.75 has risen above both its 50- and 200-day simple moving averages (SMAs). That suggests some healthy momentum for the fund, making it a notable option for those looking to use midcaps as a bridge to a big 2025 for smaller firms.
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