“In addition, a secular theme we see benefiting US mid-caps is a relatively new phenomenon developing called onshoring. The US is seeing business come to the US as foreign locations are becoming less competitive and reliable for political or other reasons. US mid-caps are often the beneficiaries of these onshoring moves, whether in manufacturing, transportation, or real estate.”
George Sakellaris, a portfolio manager of the Mid-Cap Growth strategy at Brown Advisory, says history has shown that US mid-caps offer attractive long-term performance, and the range of companies in this part of the market is broader than perhaps is the case in the large-cap universe.
“In fact, we believe that today, many of the cutting-edge companies that growth investors seek reside in the mid-cap universe, in particular quality growth companies which have corrected substantially since November 2021.
“Lastly, we believe the mid-cap range offers investors a reprieve from two risks that have grown in other market segments: increased concentration in large-cap benchmarks and deteriorating quality in the small-cap universe.”
Citing the long-term performance record of US mid-cap stocks according to the Russell Midcap Index, Sakellaris says: “Broad equity market indices capturing the segment have outperformed their larger and smaller counterparts over time, in both absolute and risk-adjusted terms, and over multiple market cycles.
“While past performance may be eye-catching, we believe the diversity of high-growth, high-quality opportunities generated by recent market trends offers a compelling reason for investors to revisit their non-large-cap exposure.
“Currently, with more than 2,000 companies boasting market caps between $2bn (£1.7bn) and $50bn, this vast and eclectic segment of the US equity market combines high-quality, large-cap characteristics with the high-growth potential of small-caps.
“Many mid-sized companies are migrating through a crucial juncture of their life cycles. While not fully mature, mid-caps often have well-established business models, access to capital, experienced management teams and a foothold in their industry, yet their full growth potential may be unrealised.
“Successful mid-caps can compound for years in this wide market-cap range, evolve into large-caps or become the acquisition targets of more mature companies.”
Although Ninety One’s American Franchise fund manager Paul Vincent owns sizable positions in certain large cap tech stocks, he says the biggest relative overweights in his fund are mid-cap stocks.
“For example, in absolute terms the fund’s largest position is well-known large-cap name Microsoft, but on an active weights basis some of the fund’s largest exposure is to Autodesk, Verisign and Dolby Labs, which all sit much further down the market-cap scale.
