Long-Term Outperformance of the Mid-Cap Asset Class

Long-Term Outperformance of the Mid-Cap Asset Class

Abstract

The mid-cap asset class, as represented by the Russell Mid-Cap Index, encompasses what has historically been the “sweet spot” of the United States equity market. The mid-cap asset class has achieved higher long-term performance and risk-adjusted returns versus its sibling large-cap and small-cap asset classes. The mid-cap asset class has also enjoyed the ability to outperform other asset classes during recessions, expansions, and other significant economic market events over the past 30 years.

I. Historical Performance: Outperformance of the Mid-Cap Asset Class

Data over the past 30-years supports the notion that the mid-cap asset class has outperformed the large-cap and small-cap indices through various market cycles and economic environments. For explanatory purposes in the proceeding charts and graphs, the mid-cap asset class will be measured by the Russell Mid-Cap Index. Large-cap and small-cap indices will be measured by the Russell 1000 and Russell 2000 indices, respectively. As a general gauge of the overall market, the S&P 500 Index is added for comparative purposes.

Figure 1: Historical Annualized Returns

Morningstart Direct (Version 3.9) [Computer software]. (2010). Chicago, IL: Morningstar, Inc.

*for periods ending June 30, 2010

II. Growing Your Money

A $10,000 investment made in the Russell Mid-Cap Index would have significantly outpaced large-cap and small-cap equity indices over the long-term as shown in Figure 2 below. Additionally, the hypothetical investment would also have outpaced the overall market, as measured by the S&P 500 Index. The “Growth of 10k”, an investment industry standard chart, is provided in Figure 2 over the trailing 30-, 15-, 10-, 5-, 3-, and 1-year time periods to depict this outperformance and growth.

Figure 2: Growth of 10k ($10,000)

Figure 2: Growth of 10k ($10,000)

III. It’s Not Just About Return

Sharpe