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Mid-Cap Stocks: Asset Class with an Identity Crisis

Posted on June 4, 2020 by Todd Marvel

Much like the middle child, mid-cap stocks have struggled to find their individuality. Carved out from the top echelons of the tiny caps and the lower end of the big caps, the mid-cap industry has a rough definition of stock with a market capitalization of greater than $2 billion, but less than $10 billion. Taking components from the worlds, some analysts assert that mid-cap stocks can provide growth opportunities located in the tiny caps and the relative stability found in the big caps.

In this rationale lies the debate for involvement in mid-cap investing. Unlike the tiny caps that haven't yet been experienced by the current market, nor like the big caps which have the majority of their growth behind them, there are people who assert that mid caps are at the"sweet spot" of the market. You might say they have survived the rigors of youth and are now prepared for their years of maturity and growth into adulthood.

Another analysts point out that this area is ripe for acquisition and merger goals. With premiums regularly being paid on the acquired inventory's value, an opportunity presents itself to the investor looking for a little"extra."

There are literally hundreds of mid-cap stocks and, though some languish in obscurity, a number have broadly recognized titles. Abercrombie & Fitch, Circuit City, AutoZone, Marriott International, and Newell Rubbermaid all fit this category. Since this range is often a stop over point for the big caps, it goes without saying that the real heavy weights of the investment world also have spend some time here.

A range of indicators track mid caps, with The Standard & Poors Mid Cap 400 and The Russell Midcap Index being just two of the more popular. The S&P 400 Midcap is a weighted index such as the S&P 500, except that it covers the mid-cap industry of the U.S. stock exchange. The Russell Midcap Index now has a weighted average market cap of $7.5 billion and contains the smallest 800 stocks in the Russell 1000.

The Steele Mutual Fund Expert database contains about 1,200 funds in its mid-cap groups, although less than 220 have track records of 10 years or more and less than 50 have been in existence for 20 or more years. The huge majority of funds which adhere to the mid-cap style are actively managed funds. For investors that follow an index strategy, they won't find as many options in comparison with the large-cap index funds, but the amount is growing.

Besides individual stocks and open-end mutual funds, exchange traded funds (ETFS) also have gotten into the act.

So, for those searching for a palatable combination between large caps and small caps, the mid- cap sector deserves serious attention.