Don’t forget mid-caps

It’s no secret that most Australian investors are concentrated in blue-chip shares. By holding too many large eggs in too few baskets investors maybe missing out on the growth opportunities offered by Australian mid-caps. 

• Historically, mid-caps have produced stronger returns than large-caps, with only slightly more volatility; and

• Mid-caps have also produced risk-adjusted outperformance relative to small-caps 

Mid-caps are simply, the sweet spot of the Australian stock market. There are several reasons for this:

• Mid-caps are where M&A happens. Vocus Communications is the latest takeover target but there have been several over recent years, including Toll Holdings, Dexus, Asciano and iiNet;
• Mid-caps tend to reinvest more in their business than large-caps;
• Mid-cap companies are often more agile then large-caps, able to take advantage of opportunities more quickly by virtue of their smaller size; and
• According to S&P, constituents of the S&P/ASX MidCap 50 have experienced meaningfully higher revenue growth and higher net income growth, as the graphs below indicate (source Mid-Cap Indexing in Australia, S&P Dow Jones Indices, 2016)

Reflecting these advantages, the graph below illustrates that over the long term, as well as in recent times, the S&P/ASX Midcap 50 Index has easily outperformed the benchmark large-cap and small-cap indices. Indeed, in recent times, mid-caps have sprinted ahead of large-cap shares.

The VanEck Vectors S&P/ASX MidCap ETF (ASX: MVE) is the only ASX ETF which tracks the S&P/ASX MidCap 50 Index.

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