Mid-cap stocks and exchange traded funds, such as the SPDR Mid-Cap 400 (NYSEArca: MDY), can go often go overlooked relative to large- and small-cap fare, but this market cap segment has a history of delivering stellar long-term returns.
“Of the universe of 2,862 publicly listed US stocks, 46% have market capitalizations between $1 billion and $12 billion—qualifying them as mid caps. Investors who allocate only to large and small caps will lack pure beta exposure to the largest segment of US firms,” said State Street in a recent note.
The $19.2 billion MDY, which is one of the largest mid-cap ETF, tracks the S&P MidCap 400 Index and holds 400 stocks with market values ranging from $1 billion to $4.5 billion.
Mid-cap companies are slightly more diversified than their small-cap peers, which allows many mid-sized companies to generate more consistent revenue and cash flow, along with providing more stable stock prices. Additionally, they are not so big that their size would slow down growth.
The mid-cap category has also outperformed their larger peers, but with lower volatility than small caps. Moreover, the returns of mid-cap stocks have also beaten those of small-cap stocks during the trailing three-, five-, and 10-year periods, with lower volatility.