Mutual Funds

What are Mid Cap Mutual Funds? | Learn More

Many investors choose mutual funds as their investment vehicle of choice because they view them as safe and/or convenient. Yet, these individuals might not necessarily have an aversion to risk—they just prefer that it’s well-managed. In such cases, investors are likely to gravitate toward mid cap mutual funds. 

Mid cap mutual funds offer a great mix of safety and opportunity. Mid cap stocks are, in and of themselves, relatively balanced. When used as the primary focus of a mutual fund—a type of professionally managed investment—it becomes a vehicle for controlled opportunity. Investors pass any risk of investing in mid caps to fund managers, while the fund passes back ROI to investors. 

If mid cap mutual funds sound like a balanced investment, it’s because they are. Let’s take a closer look at what creates this balance and why mid cap mutual funds are a popular option for many investors. 

Mid Cap mutual funds can be a smart investment

A Quick Recap of Market Capitalization

First, let’s recap market capitalization. This is the value of a company based on its outstanding shares and its current share price. This cumulative total is the company’s market capitalization. Or, in simpler terms, its worth in the eyes of investors. Market cap breaks down into several distinct categories:

  • Nano cap:  Less than $50 million
  • Micro caps: $50 million to $300 million
  • Small caps: $300 million to $2 billion
  • Mid caps: $2 billion to $10 billion
  • Large caps: $10 billion to $200 billion
  • Mega caps: More than $200 billion

Mid cap stocks are right in the middle. They represent a transitionary period for many companies. In some cases, mid caps represent small caps that have newfound stability as they continue their growth trajectory. In other cases, they represent large cap companies that’ve had a fall from grace—companies undervalued by the market. Nevertheless, the mid-market is a place many prospectors look for opportunities in both growth and value. 

A Focus on Mid-Cap Companies

Mid cap mutual funds have a specific focus on mid cap companies. This means that the fund’s allocation is predominately geared toward companies in the $2 billion to $10 billion range. Moreover, many mutual funds will focus on a specific mid-market investing strategy. Some of the most common include:

  • Mid cap growth funds target mid cap companies poised for growth, with a strong business model and the potential to disrupt markets. The JPMorgan Mid Cap Growth Fund (OSGIX) is a great example. This fund contains 114 companies with a median market cap of $27.34 billion.
  • Mid cap value funds are another type of mid-market fund. Funds like the BlackRock Mid-Cap Value Fund (MARFX) seek to prospect mid cap companies that the market has undervalued, then ride the growth of these companies. It benchmarks the Russell MidCap Value Index to maintain an average market cap below $30 billion.
  • Mid cap dividend funds are rarer than large cap mutual funds of the same type, but they do exist. In fact, many focus on dividend growth stocks. The Keeley Mid Cap Dividend Value Fund (KMDIX)) is an example of one such fund. It’s well-known for prospecting mid cap dividend growth stocks or mid caps expected to begin issuing dividends
  • Mid cap emerging market funds are harder to come by than other types of funds, but they do exist. One of the best examples is the Fidelity Emerging Markets Index (FERGX). It’s a globalized fund that seeks to capitalize on the surging momentum of mid-market companies all around the world.

There are, of course, many other types of mid cap mutual funds beyond the ones listed here. General mid cap mutual funds tend to be the most predominant, however, as they offer the best balance of risk and reward. 

Popular Mid Cap Mutual Funds

If mid cap mutual funds have piqued your curiosity, it’s best to start with general funds that track established mid cap indices. Some of the best-performing and most popular include:

  • T. Rowe Price Diversified Mid Cap Growth Fund (PRDMX)
  • BlackRock Mid-Cap Growth Equity Portfolio (BMGAX)
  • Fidelity Growth Strategies Fund (FDEGX)
  • Wells Fargo Enterprise Fund (SENAX)
  • Goldman Sachs Small/Mid Cap Growth Fund (GSMAX)

These mutual funds are “pure play” mid cap funds, in that they track indices devoted to this sector of the market. Moreover, they tend to have low expense ratios and lower buy-in barriers, making them broadly accessible to new and established investors alike. 

The Benefits of Mid Cap Mutual Funds

The chief benefit of mid cap mutual funds is that they establish balance well. While there’s some risk in mid-market companies, a well-managed ETF balances that risk. Likewise, the opportunity for growth that comes with mid caps is exemplified in a fund designed specifically to maximize their potential. In many ways, mid cap mutual funds are a great “set it and forget it” investment for those who are risk averse but still want to capitalize on growth stocks. 

The Drawbacks of Mid Cap Mutual Funds

While they do a great job of balancing risk and reward, mid cap funds aren’t immune to volatility—especially sector specific funds and those seeking value plays. It’s the job of fund managers to mitigate this volatility, but broad market turndown is difficult to safeguard against with a fund that’s largely based in mid caps. Mid caps will weather volatility better than small caps, but will suffer more than large caps—especially in certain sectors or in the face of protracted headwinds. 

Mid-Cap Funds Offer Balanced Risk and Reward

Balance is the name of the game when it comes to mid cap mutual funds. They’re an inviting prospect for opportunists and conservative investors alike. And, the sheer number of mutual fund options focused on the mid-market segment mean there are opportunities for all investment styles to benefit from growth stocks, value plays, emerging markets and companies finding their footing as dividend payers. 

In fact, many retirees look to mutual funds for their portfolios. To learn more, sign up for the Wealthy Retirement e-letter below! You will learn how to prepare for retirement and how to protect your portfolio in the process!



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