Are mid-cap value funds a good investment?
Mid-cap ETFs are an attractive way to invest in solid performers that have both growth and stability – and to do so without the risks of buying into individual stocks. While an ETF can help diversify the risk of buying a few individual stocks, it won't eliminate all the risk of investing.
Synopsis. Financial planners believe long term equity investors can consider an investment in large and midcap schemes. They could start a long term systematic investment plan (SIP) in this category which can give dual benefits of stability offered by large caps and the growth.
Growth eases the ability to access financing to fuel expansion, so mid-caps typically have an easier time obtaining financing than small caps do. Investing in mid-cap stocks can be the happy medium between small-cap growth and large-cap stability. Con: Mid-cap stocks can be more vulnerable than large-cap ones.
Large-cap funds are less risky than small and mid-cap funds. Small and mid-cap funds have higher growth potential than large-cap funds. Large-cap funds are good for conservative investors. Mid and small-cap funds are suitable for medium-risk takers to aggressive investors.
Value mutual funds are suitable for investors who have a long-term investment horizon, a high risk appetite, and a contrarian mindset. Value investing requires patience and discipline, as it may take time for the market to recognise the true worth of the undervalued stocks.
Mid cap equity fund are usually considered more risky than large-cap funds, but less risky than small-cap funds.
Investors with long-term horizons and risk appetite should consider. Fund managers invest in mid-sized companies aiming for long-term growth. Taxed as equity funds. Carry market and business risks.
- JPMorgan Diversified Return US Eq ETF.
- iShares Morningstar Mid-Cap Value ETF.
- Vanguard S&P Mid-Cap 400 Value ETF.
- SPDR® Russell 1000 Low Vol Foc ETF.
- Vanguard Mid-Cap Value ETF.
- WisdomTree U.S. MidCap Earnings ETF.
- iShares S&P Mid-Cap 400 Value ETF.
The fall in midcap and smallcap stocks was catalyzed by stretched valuations and worries on liquidity risk in SMID funds.
Average 1-year returns by these funds stood at 49% as on February 28 while the median returns stood at 50%. ETMarkets brings five mutual funds from this pack with highest absolute returns in the last 1 year. These funds are benchmarked against Nifty Midcap 150 - TRI whose returns are 56%.
How much should you invest in mid-cap?
To find an appropriate investment mix for your time horizon, find your age and the corresponding portfolio allocation. A typical mixture could include 60% large-cap (established companies), 20% mid-cap/small-cap (small to medium-sized compa- nies), and 20% international (companies outside the U.S.) stocks.
Many financial planners recommend parking the bulk of your investments in a diversified, large-company U.S. stock mutual fund or exchange-traded fund. But if you're hoping to participate in decades worth of stock-market gains, it may be worth investing in funds that own small- and mid-cap stocks, too.
If, on the other hand, the economy begins to slow down or enter a recession, then mid-cap companies will outperform small-caps. As seen in the figure below, mid and small-caps (represented by the S&P 600) perform well in the early stages of the business cycle as soon as people sense a recovery.
Large-Cap Funds:
Large-Cap Funds are considered relatively more stable because the companies are typically reputable, trustworthy, and well established in the market. These are mostly market leaders and well-known brands with a good performance track record over the medium to the long-term investment horizon.
Mid Caps Dominate in Long-Term Performance
In fact, 60% of the time, mid-caps outperformed small- and large-cap stocks over any 10-year rolling period in the past 20 years.
“We don't think the economic environment in 2024 is going to be good enough to support value outperformance,” LPL Financial chief equity strategist Jeff Buchbinder recently told Morningstar. “Remember, growth stocks tend to do better with lower interest rates and modest inflation environments.
For example, value stocks tend to outperform during bear markets and economic recessions, while growth stocks tend to excel during bull markets or periods of economic expansion. This factor should, therefore, be taken into account by shorter-term investors or those seeking to time the markets.
Some studies show that value investing has outperformed growth over extended periods of time on a value-adjusted basis. Value investors argue that a short-term focus can often push stock prices to low levels, which creates great buying opportunities for value investors.
Returns: Mid-cap funds generally tend to deliver market-beating returns over the long term. However, in a short to medium period, they might underperform. So investors need to be prepared to stay invested if they want to benefit from this fund category.
Volatility: Mid-cap stocks can be more volatile than large-cap stocks, with their prices subject to significant fluctuations. Liquidity: In some cases, mid-cap stocks may have lower trading volumes, making it more challenging to buy or sell shares, particularly in large quantities.
Why buy mid-cap funds?
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 tend to offer investors greater growth potential than large cap stocks, but with less volatility and risk than small cap stocks.
There is no better time to start investing. It is very difficult to time the markets and although the markets are due for a correction, it would not be wise to wait further. Also, when it comes to SIPs, there is not much merit in timing the markets. We would suggest you invest in different mutual fund categories.
| Scheme Name | Plan | 1Y |
|---|---|---|
| JM Midcap Fund - Direct Plan - Growth | Direct Plan | 73.05% |
| ITI Mid Cap Fund - Direct Plan - Growth | Direct Plan | 71.35% |
| Mahindra Manulife Mid Cap Fund - Direct Plan - Growth | Direct Plan | 67.68% |
| Nippon India Growth Fund - Direct Plan - Growth | Direct Plan | 61.77% |
Risk-Profile: While low-risk profile investors usually prefer index funds, mid-cap funds are typically preferred by Moderate, Aggressive and Growth Investors. Market Volatility: The active management of mid-cap funds make them more volatile. However, these funds do have a higher return potential in a bull market.
| Stable Value Fixed Income | 1 year gross return | 1 year net return |
|---|---|---|
| Putnam Stable Value Fund: 20bps | 3.33 | 3.12 |
| Putnam Stable Value Composite | 3.33 | 3.08 |
| Putnam Stable Value Fund: 25bps | 3.33 | 3.07 |
| Federated Hermes Capital Pres IP | 3.39 | 3.06 |
