What do the stock market and families have in common? The "middles" never get noticed.
However, because of a confluence of events, this is starting to change -- for the stock market, at least.
In recent months, many heavy-hitting tech stocks with large market capitalizations have swooned, while broader market jitters and inflation-rate fears have kept a lid on speculation in the smallest companies. Meanwhile, standard mid-cap fare such as energy, utility and health care stocks have heated up, and more volatile, high-growth sectors such as semiconductor stocks have given the mid-cap arena a further boost.
The result? Since the beginning of the year, mid-cap stocks, generally defined as stock with a market capitalization of $1.5 billion to $12 billion, have handily outpaced their large-cap and small-cap siblings. The
index has climbed 10% this year, while the broader
has remained flat and the
, a popular measure of small-cap stock performance, has eked out a 1% gain.
Not surprisingly, mutual funds that focus on mid-cap stocks have been the big beneficiary. As a group, mid-cap growth funds are up 7.5% so far this year, according to
, leading both large- and small-cap growth. Mid-cap value funds, meanwhile, have risen 4.2%. (To get the lowdown on the hottest mid-cap funds, stay tuned for the
"These stocks are not so small that they're scary and they hold up a lot better than some of the more speculative stocks,'' says Sam Jones, a financial adviser with Denver-based
"They're companies that already have a track record," says Chris McHugh, senior portfolio manager with the
of Berwyn, Pa. At the same time, some stocks in the sector still have the growth characteristics of smaller companies.
Mid-caps have been the beneficiaries of investors' aversion to risky highfliers. By the beginning of June, mega-cap stocks got too frothy for some investors, and a flight to safer companies was in the offing. "They just hit a wall. Many investors wondered if this could continue going up," says Dean DuMonthier, portfolio manager with
Strong Mid Cap Disciplined
fund, a value offering that is up 13% this year.
Oddly enough, at the same time, they have managed to attract other investors who, while nervous to take on high-risk small fry, were eager to take on the risks that some midsize growth companies offer. "Investors also feel that they want more risk, and they're not ready to go into small caps," says Chris Perras, manager of
Mid Cap Growth fund, which is up 10% on the year.
To be sure, many mid-caps have taken their lumps during the broad-based spring selloff. But they have managed to recover, paced by several hot sectors.
After a windfall early in the year, biotechs fell back to earth in the
bloodletting. They have since rebounded considerably. Some of the biggest winners of the sector have been mid-cap stocks such as
Semiconductors have also led the charge. Turner's McHugh likes
McHugh also likes oil-service stocks that have use rising oil prices to their advantage. He's picked up shares of
Pending utility deregulation is starting to produce some early winners. Though many of the utilities tend to be stodgier, income-producing fare, there are some growth stocks as well. Year to date, the
Dow Jones Utility Average
is up 16.1%.
Given some of these positive trends, financial planners say that investors should get some exposure to mid-caps, even as the face of the sector is changing amid the volatile market.
"A lot of companies with a large market cap have small trading floats and small revenues," says Perras of AIM.
Volatility can cause these stocks to bounce around the capitalization spectrum quite a bit. Take
, the Internet infrastructure concern. It went from being a small-cap to mid-cap to large-cap and back to mid-cap within the space of a year as its stock price bounced around.