Middle-capitalization stocks offer investors the potential to outperform large-caps with less volatility than small-caps, and investors can also target the mid-cap segment through related exchange traded funds.
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.
The mid-caps segment has also outperformed their large-cap 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.
The WisdomTree MidCap Earnings Fund (NYSEArca: EZM) is one of the smart beta mid-cap offerings with a lengthy track record, having recently celebrated its 10th anniversary. EZM tracks the WisdomTree MidCap Earnings Index, which weights components by earnings, indicating that the ETF’s holdings are profitable companies.