Mid-cap stocks and exchange traded funds, such as the SPDR Mid-Cap 400 (NYSEArca: MDY), off the potential to outperform large-caps with less volatility than small-caps over the long-term, but many investors gloss over mid-sized stocks.
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.
MDY, which tracks the S&P MidCap 400 Index, is up about 5% year-to-date, an advantage of approximately 100 basis points over the large-cap S&P 500. Still, data suggest investors are more inclined to embrace large- and small-cap funds over mid-cap equivalents.
MDY “is the largest mid-cap ETF. Despite grossly outperforming its large-cap and small-cap fund competitors, it has the least amount of assets among the three,” reports Bloomberg. “To take that a step further, if you compare the performance of all ETFs that have ever existed, MDY would have been the best bet, according to Bloomberg Intelligence ETF analyst Eric Balchunas.”
Don’t Miss Out-performance
Middle capitalization stocks, sometimes referred to as the market’s sweet spot, could help investors achieve improved risk-adjusted returns. 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 and provide more stable stock prices. Additionally, they are not so big that their size would slow down growth.
“Perhaps one way to lure investors to the category would be to add some sexy investment theme that’s popular with millennials—such as ESG, a metric used to evaluate companies’ environmental, social, and governance characteristics,” according to Bloomberg.