CHICAGO (Reuters) – Like the middle children they are, mid-cap stocks are often outshined by their mega-cap brethren. The largest two constituents of the S&P 400 Mid-cap Index are Regeneron Pharmaceuticals Inc and Equinix Inc, an information technology firm. Not exactly Apple Inc or Johnson & Johnson.
Yet inattention from the investing world often misses that fact that mid-caps often outperform large companies and are worthy additions to any portfolio. These are generally companies with a market value of from $1 billion to $4 billion but with an outer range of about $13 billion,
Take Ametek Inc, a $9 billion company, which produces electronic instruments for the aerospace industry. It rarely makes headlines, but the company hit a 52-week high on January 4. Overall, the S&P mid-cap index was up almost 4 percent year-to-date through January 11, compared to 3.2-percent return for the large-cap S&P 500 Index over the same period.
Mid-caps tend to prosper because of their flexibility to grow earnings and acquire companies away from the constant glare of analysts and financial media. Institutional investors also tend to shift their purchasing to mid- and small-cap stocks as a bull market matures.
An even better reason to consider mid-caps is their performance long-term when compared to the large-cap S&P 500 Index. Standard and Poor’s did a study of their mid-cap 400 index that covered the period from July 1991 through December 2011 that found that mid-sized companies posted an average return of 1.04 percent, vs. 0.75 percent for the large-cap index.