Written by KAR Investment Team members:
Jon K. Christensen, CFA, Portfolio Manager, and Senior Research Analyst
Craig Stone, Portfolio Manager and Senior Research Analyst
This white paper, originally released in October 2018, has been updated with data as of September 30, 2019.
The mid-cap segment of the equity market is often overlooked, falling between headline-grabbing and widely followed large caps and small caps known for their high growth potential. Mid-caps—generally defined as companies between $2 billion and $10 billion in market capitalization, with some reaching north of $30 billion— have historically outperformed both small- and large-cap stocks, but don’t get much investor attention.
The lines between market-cap categories can be blurry, leading many investors to believe that owning both large and small stocks provides sufficient exposure across the market-cap spectrum. In fact, data point to a clear underrepresentation of the asset class. Mid-caps make up about 26% of the overall equity market, according to a breakdown of the Russell indexes, but actual investments into the asset class only account for about 13% of all invested assets, as represented by Morningstar asset flows.
Investors lacking a dedicated allocation to mid-caps may be missing exposure to a crucial segment. Mid-cap stocks have proven to be a positive addition to a diversified portfolio of equities, both in terms of boosting portfolio return and lowering risk.
Related Resource
Mid-Cap Allocation Tool
Use this interactive tool to see how an allocation to mid-cap stocks may improve an equity portfolio’s performance and mitigate risk over time.
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