When looking at equity market exposure, investors may find that large-cap stocks are too big for rapid growth and small-caps may expose them to more volatile short-term moves, but middle capitalization stocks and related exchange traded funds may be just right.
Middle capitalization stocks, or 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.
Over the long haul, mid-cap stocks have historically outperformed their large-cap peers and wit.
To gauge how much investors should be allocated toward mid-caps, middle capitalization stocks make up about 18% of total stock market index funds and account for 20% of the U.S. equity universe, according to Morningstar data.
Investors interested in mid-cap focused ETFs have a number of options to choose from, including the iShares Core S&P Mid-Cap ETF (NYSEArca: IJH), the largest offering in the space. IJH tries to reflect the performance of the S&P MidCap 400 Index and comes with a 0.15% expense ratio.