One way stocks are valued and categorized is by market capitalization, or the total market value of all of their outstanding shares. Market cap can be thought of as the stock market’s consensus valuation of a publicly traded company.
What Is a Mid-Cap Stock?
A mid-cap stock is one with a market cap of between $2 billion and $10 billion. Mid-cap stocks are larger than micro and small-cap stocks, but they are smaller than large or mega-cap stocks. In other words, they are the “Average Joes” of the equity market.
Stock Categories by Market Cap
While some investors and analysts use different thresholds to categorize companies by size, the following categories and thresholds are probably the most common.
How Many Mid-Cap Stocks Are There?
As of early 2023, there were about 1,115 American stocks in the mid-cap category. Together, these mid-cap companies represented only about 9.15% of the U.S. equity market by market cap according to Stock Market MBA.
Examples of Mid-Cap Stocks
Well-known companies that fall into the mid-cap category include Valvoline (an oil-change retailer), Avis Budget Group (a car-rental agency), Chewy (an online pet-supply retailer), Discover (a credit card and loan company), and Hyatt (a hotel chain).
Why Are Mid-Cap Stocks Important?
Large and mega-cap stocks are often mature, well-known companies with records of consistent profits. These household names are relatively stable, and many of them pay regular dividends to their stockholders. Due to their age, reputation, and perceived stability, they are thought of by many as safer than other stocks, but they may not have as much room to go up in value as smaller companies.
Small and micro caps, on the other hand, tend to be smaller, lesser-known companies that still have a lot of room for growth. This makes them a favorite among speculators hoping to buy into the next Amazon or Microsoft before it takes off. And while it’s true that as a category, small-cap stocks tend to outperform the broader market over long periods of time, individual small caps are highly risky, especially if they have yet to turn a consistent profit. Many smaller and newer companies fail, and if they do, they can drag their investors’ portfolios down with them.
Mid-cap stocks, therefore, offer a reasonable mix of growth potential and risk mitigation. They are large and established enough that they are relatively unlikely to fail altogether, but they are small enough that they still have room to expand in size, market share, and value. This makes them a favorite among investors who want to balance upside potential with downside risk.
How to Invest in Mid-Cap Stocks
Depending on how much time and effort an investor has to devote to the composition of their portfolio, they could either invest in individual mid-cap stocks or buy shares of one or mid-cap-themed ETFs.
Those with plenty of time for research and analysis could attempt to identify an array of individual mid-cap stocks with healthier fundamentals than their industry peers.
Investors who prefer a more hands-off, buy-and-hold approach might do better to buy into one or more mid-cap ETFs. These offer broad exposure to the mid-cap portion of the equity market, and they provide inter-industry diversification with a single investment. Additionally, ETFs are relatively easy to purchase through a retirement account like an IRA or employer-sponsored 401(k).
The mid-cap funds listed below are some of the best-known and most popular among passive investors interested in the mid-cap proportion of the market.
Popular Mid-Cap ETFs
- iShares Core S&P Mid-Cap ETF (IJH)
- Vanguard Mid-Cap ETF (VO)
- iShares Russell Midcap ETF (IWR)
- SPDR S&P Midcap 400 ETF Trust (MDY)
- Vanguard Mid-Cap Value ETF (VOE)
What Stock Indexes Track the Mid-Cap Portion of the Stock Market?
- S&P Mid-Cap 400
- Russell Midcap Index
- Wilshire US Mid-Cap Total Market Index
- Dow Jones U.S. Mid-Cap Total Stock Market Index
- CRSP US Mid Cap Index
