What is the S&P Midcap 400 Index?
Definition, Historic Performance & Analysis of Mid-cap Stock Investing
The S&P Midcap 400 Index, also known as the S&P 400, is an index comprised of U.S. stocks in the middle capitalization range, which is generally considered to be between $200 million and $5 billion in market value. Some investors like funds that invest in mid-cap stocks because they have historically produced returns above the S&P 500 index.
S&P Mid Cap Index Definition
According to Standard & Poor's website, "the S&P MidCap 400® provides investors with a benchmark for mid-sized companies. The index covers over 7% of the U.S. equity market, and seeks to remain an accurate measure of mid-sized companies, reflecting the risk and return characteristics of the broader mid-cap universe on an on-going basis."
According to Morningstar, "middle capitalization range" is from $200 million to $5 billion market value. This may sound large but companies are not widely known until they reach the multi-billion mark. For reference and comparison, mid-cap stocks can include some companies you may have heard of, such as Whole Foods Market, whereas a large-cap company, such as Wal-Mart, is much larger in capitalization ($230 billion in 2012). Small-capitalization companies are not widely known names.
S&P 500 vs S&P 400 vs Russell 2000 Indices
You may be surprised by the historic performance of the mid-cap stock index compared to the S&P 500 (large-cap stocks) and the Russell 2000 (small-cap stocks). I'll share some thoughts on the numbers after the chart:
|Index Name||3-Yr Return||5-Yr Return||10-Yr Return||15-Yr Return|
All of the above represent annualized total returns as of June 30, 2018. Data from Morningstar, Inc., Vanguard (VIMSX for Mid Cap 400) and iShares (IWM for Russell 2000). Past performance is no guarantee of future results.
Mid-cap Stock Performance Analysis
The first point I'll make is that mid-cap stocks outperform both large-cap and small-cap stocks in the long run, as evidenced by the 15-year annualized returns. These returns, reaching back as far as 15 years, are significant and meaningful for several other reasons:
- The 10 years ending June 30, 2018 covers most of the bull market beginning March 9, 2009.
- The 15-year returns, going back to 2000, captures the bear market of 2007-2008 and the end of the previous bull market.
- Again, it is significant that the S&P Midcap 400 Index beats the S&P 500 Index (large-cap stocks) and the Russell 2000 (small-cap stocks) over a 15-year period, representing an incredibly diverse cross-section of economic and market conditions.
Key Takeaways and Cautions of Investing in Mid Cap Stocks
The mid-cap stock range represents a "sweet spot" of investing because they tend to outperform large-cap stocks in the long run but don't have as much market risk as small cap stocks. Although there's no guarantee mid-cap stocks will continue this long-term trend, investors who want to add diversity while creating an aggressive portfolio of mutual funds, should definitely take a careful look at mid-cap stock funds, especially the index funds and Exchange Traded Funds (ETF) that invest in mid-caps.
Mid-cap funds can be a part of diversified portfolio that includes other mutual funds from different categories and asset classes.
Disclaimer: The information on this site is provided for discussion purposes only, and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell securities.