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Mid Caps: At the Center of Attention

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Written by KAR Investment Team members:
Jon K. Christensen, CFA, Portfolio Manager, and Senior Research Analyst
Craig Stone, Portfolio Manager and Senior Research Analyst

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.

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