Don't Squeeze Out the Mid Cap from Your Portfolio

Physician's Money Digest, January31 2004, Volume 11, Issue 2

The instinct may be to balance out your portfolio with small cap stocks on one end and large cap stocks on the other, but don't forget to mix in some mid caps. Mid cap stocks have been performing well; mostly due to their ability to grow faster than large caps but not being as risky as small caps.

According to Worth, mid caps have had a 3-year return of 15.42% with some indexes beating both large and small cap indexes. It's more likely for mid cap stocks to have more focused business models and better quality management, balance sheets, and access to capital.

By adding mid caps, a portfolio can become more stable, improve earnings, and increase growth rate. There are some risks to these stocks and investors should keep an eye on changes in fund flows and mean reversals. Some companies that are changing status from small cap to mid cap might experience growing pains; however, they may also provide great opportunities for high returns.