Why Mid-Caps Offer the Sweet Spot for Investors

During their recent episode, Taylor, Carlisle, and George Livadis discussed Why Mid-Caps Offer the Sweet Spot for Investors. Here’s an excerpt from the episode:

Tobias: I feel like no two periods are exactly the same. This is definitely not as memey and as bubbly as it was back then. But I do feel like there’s a lot of similarity in the sense that– I feel like we’re back to Mag Seven being very dominant driving the market. What does the market look like to you?

George: I think that’s right. I don’t know, I’ve been a little bit more in the weeds lately where I try not to pay attention to that. As someone who mostly focuses on mid-caps, I think anybody who doesn’t do large and mega-cap has been irritated by the Mag Seven stocks for a long time. But I think that’s still probably right. They’re still the main game in town.

I think this month, for example, has been pretty rough for European stocks. So, it still feels like the market’s pretty narrow where it’s mega-cap tech US especially versus the rest of the world.

Tobias: What attracts you to mid-cap? Why do you like mid-cap?

George: In some ways, I just defaulted to it. Honestly, when I was a banker– I worked for Bank of Montreal, and we mostly covered mid-cap clients and we mostly covered mid-cap companies when I was on the sell side. And to me, there was a logical opportunity where I think of mid-caps as–

Most companies that make it to mid-cap. They’re probably going to make it, because they’ve made it out of small cap land. So, you’re fishing in a better pond than small and micro caps to begin with. They’re still less well covered than large caps. There’s a lot of interesting companies in the universe. Nothing too scientific, but just seems interesting and there should be opportunity long-term.

Jake: Nice to have professional management.

Tobias: Yeah.

George: Yeah.

Tobias: Ben Claremon pointed out to me that, “The mid cap indexes have the volatility of the large caps and the returns of small caps. So, they have the best risk-adjusted returns,” which makes sense. Like, you can rationalize it backwards if they get escaped small cap land. They’re not yet large caps, so they’re not as well covered, but they’ve got professional management. They’re a little bit better capitalized, and they’ve got more than one product line and they potentially going to get there. And so, it’s a good place to take a bet.

But then, you could make the argument in small that there’s– You’re much more likely to find the things that’ll make it to mid and get the really [crosstalk] chance there.

George: Yeah.

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