Mid-cap investing historically has offered an attractive opportunity for investors, combining the staying power of large-cap stocks with the growth potential of small-cap stocks. This becomes clear when looking at the long-term returns of mid-sized companies, dating back over 40 years. Since 1979 – through the end of 2022 – the Russell Midcap® lndex1 has outperformed the small-cap Russell 2000® lndex2 and the large-cap Russell 1000® Index.3
Room for growth in mid-cap
Mid-cap companies tend to have faster earnings and sales growth rates than large-cap stocks, possibly resulting from relatively more remaining business opportunities in the mid-cap space. While many large-cap companies have already expanded internationally, and reached out to most of their potential buyers, mid-sized companies may have more untapped opportunities ahead of them.
Flexibility and hidden potential
Because of their size, mid-cap companies may be nimbler than large-caps at pivoting or adapting their business models. This agility may help them more quickly adjust their business approach to take advantage of new or shifting market opportunities.
lt is generally accepted that mid-cap companies receive less active coverage by stock analysts than large-caps. Thus, the most skilled active portfolio managers and their analysts may be able to uncover opportunities while most analysts focus on the largest companies in the world.
Mid-caps and their goldilocks factors
Generally speaking, mid-sized companies are usually more established than smaller companies, which can mean they present lower volatility risk to investors. This is clear when looking at the standard deviation over time of the Russell Midcap® Index and the Russell 2000® Index.