
Please try another search
This article was originally published at The HumbleDollar
You might recall Malcolm in the Middle, a turn-of-the-century TV sitcom in which the middle child often feels ignored. That’s kind of what goes on with mid-sized stocks.
Large-capitalization growth shares and small-cap value stocks seem to get all the attention these days. The former feature the FAAMG companies (Facebook (NASDAQ:FB), Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT) and Google (NASDAQ:GOOGL)) and other 2020 winners, while the latter are the darling of investors who embrace academic research showing strong long-term outperformance by small-cap value shares.
But how about some kudos for mid-sized stocks? Bank of America recently compared U.S. large, mid-cap and small-cap total returns since 1978. A $1 initial investment would have grown to $139 in large-cap stocks, $181 in small-cap shares and $199 in the mid-cap index. That’s a 13.1% annual return for mid-caps.
Why have mid-cap stocks performed so well? One possibility: The category includes smaller companies that are reasonably valued but growing fast—and the best performers among them get handed off to the large-cap index when they get big and are likely to turn sluggish.
Knowing a portfolio’s sector composition is important. Mid-caps are more tilted to the industrials, real estate, financials and materials sectors than the large-cap index, but less exposed to communication services and information technology. Result: Mid-cap stocks are more value-oriented than large-caps.
This also seems to be a part of the market that’s overlooked. Bank of America says that since 2003, mid-cap funds received just 4.6% of all exchange-traded stock fund flows, versus 7.9% for small-caps and 87.5% for large-caps. Perhaps mid-caps deserve more attention. Earnings growth for mid-caps has averaged 9.2% a year since 1995, versus just 6.4% for large-cap companies.
Some investors claim they get mid-cap exposure through total market index funds like Vanguard Total Stock Market Index Fund ETF Shares (NYSE:VTI). But the data show that the Vanguard fund has just an 18% weight in mid-caps, according to the Morningstar style box. Instead, more than 70% of the fund is in large-cap shares. When you buy a total U.S. market fund, you’re essentially buying big companies. I’d argue that spicing it up with some extra mid-cap exposure, and maybe also some small-cap value, can make sense.
You could get your fix of mid-cap stocks with a fund like Vanguard Mid-Cap Index Fund ETF Shares (NYSE:VO). Its biggest holdings include companies like Amphenol Corporation (NYSE:APH), Digital Realty Trust (NYSE:DLR), IDEXX Laboratories (NASDAQ:IDXX) and Microchip Technology (NASDAQ:MCHP). Are you familiar with all of these? Neither am I.
But there’s no need to fret over the largest holdings in a mid-cap index fund. If a stock grows really big, it’ll get called up to the large-cap index. As a result, mid-cap index funds tend to spread their assets more evenly than the top-heavy large-cap index funds. For instance, the top 10 holdings in Vanguard Mid-Cap ETF represent 6% of total assets, versus 26% for Vanguard Large-Cap Index Fund ETF Shares (NYSE:VV).
There are other solid mid-cap fund options, including iShares Core S&P Mid-Cap ETF (NYSE:IJH), iShares Russell Mid-Cap ETF (NYSE:IWR), Schwab U.S. Mid-Cap ETF™ (NYSE:SCHM) and SPDR SPDR® S&P MIDCAP 400 ETF Trust (NYSE:MDY).
Another route is to own the “extended market” through a fund like Vanguard Extended Market Index Fund ETF Shares (NYSE:VXF), which owns everything outside the S&P 500. Interestingly, Vanguard Extended Market owned Tesla (NASDAQ:TSLA) last year, whereas some mid-cap index funds did not—resulting in higher 2020 returns for Vanguard and other extended market funds.
Based on 15 different premium valuation models, we calculate whether Apple stock is undervalued or overvalued every day. If you are considering Apple for your portfolio, you need to check this out:
Altria shares are down close to 11% since the start of 2022 Stock currently generates a lucrative dividend yield of 8.5% Buy-and-hold investors could consider buying Altria stock...
Home Depot faces uncertain earnings outlook But it has strong cash flow and consistent dividend yield Share price weakness offers buying opportunity as fundamentals remain...
Wednesday was a quiet session for the S&P 500 as the index finished almost exactly where it started. That was a welcome relief following Tuesday’s massive bearish reversal. Does...
Are you sure you want to block %USER_NAME%?
By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.
%USER_NAME% was successfully added to your Block List
Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.
I feel that this comment is:
Thank You!
Your report has been sent to our moderators for review
Add a Comment
We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:
Enrich the conversation, don’t trash it.
Stay focused and on track. Only post material that’s relevant to the topic being discussed.
Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.
Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.