Mid-Cap Fund Meaning Overview and Examples

Mid-Cap Fund Meaning Overview and Examples

Mid-Cap Fund: Meaning, Overview, and Examples

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What Is a Midcap Fund?

A mid-cap fund is a pooled investment vehicle that specifically invests in mid-cap companies, or companies with market capitalizations ranging from approximately $2 billion to $10 billion.

Key Takeaways

  • A mid-cap fund is a pooled investment, such as a mutual fund, that focuses on companies with a market capitalization in the middle range of listed stocks.
  • Mid-cap stocks provide greater growth potential than large cap stocks, but with less volatility and risk than small cap stocks.
  • Mid-cap funds allow investors to easily and cost-effectively hold a diversified portfolio of these stocks.
  • Several benchmark indexes that mid-cap funds can track include the S&P 400 and Russell 1000.
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Understanding Mid-Cap Funds

Mid-cap funds provide a diversified portfolio of mid-cap companies for investors. These companies have made equity capital markets a substantial part of their structures. Mid-cap companies generally offer more growth potential than large-cap stocks and with less volatility than the small-cap segment. Mid-cap funds seek to capitalize on this potential by creating diversified funds among mid-cap companies.

Fund companies and indexes focus on mid-cap stocks with additional components such as growth or value. Mid-cap funds can be actively or passively managed. The mid-cap segment offers a wide range of investment options. Some of the most popular benchmarks for the mid-cap segment are the S&P MidCap 400, the Russell 1000 MidCap Index, and the Wilshire US Mid-Cap Index. As of December 2020, the smallest member of the Wilshire US Mid-Cap Index was valued at $0.8 billion, and the largest had a market capitalization of $23.4 billion.

Defining Midcap

"Mid-cap" is the term given to companies with a market capitalization between $2 billion and $10 billion. Classifications such as large-cap, mid-cap, and small-cap are only approximations and may change over time.

Most financial advisors suggest that minimizing risk requires a diversified portfolio that includes small-cap, mid-cap, and large-cap stocks. Mid-cap stocks are seen as a way to diversify risk. They provide both growth and stability.

Benefits of Mid-Cap Funds

Mid-cap funds have advantages over individual mid-cap stocks and other fund types. While less volatile than small-cap stocks, holding only a few mid-cap funds is usually riskier than holding several large-cap stocks. By investing in a mid-cap fund, investors can capture the growth potential without company-specific risks.

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Mid-cap funds can provide a different pattern of returns compared to large or small stocks, making them useful for portfolio diversification. Choosing a mid-cap fund can prevent investors from going too far in the wrong direction.

Criticism of Mid-Cap Funds

By investing in a mid-cap fund instead of individual mid-cap stocks, investors may miss out on massive gains. The CAN SLIM system developed by William J. O’Neil is often successfully applied to mid-cap stocks. However, most investors are less successful at picking winners.

Examples of Mid-Cap Funds

Here are some examples of the market’s top mid-cap funds.

BlackRock MidCap Growth Equity Fund (BMGAX)

Vanguard Mid-Cap ETF (VO)

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