The Power of Mid-Caps

We believe U.S. mid-cap companies offer untapped potential for investors. With many small- and large-cap funds extending their reach to the mid-cap space, some investors may assume they have covered all asset classes with an allocation to only small- and large-cap stocks, perhaps neglecting mid-caps altogether. Investors could be missing out on the power of a mid-cap allocation.

September 2023
  • Neil J. Hennessy
    Neil J. Hennessy
    Chief Market Strategist and Portfolio Manager
  • Ryan C. Kelley
    Ryan C. Kelley, CFA
    Chief Investment Officer and Portfolio Manager
  • L. Joshua Wein, CAIA
    L. Joshua Wein, CAIA
    Portfolio Manager

Mid Caps Dominate in Long-Term Performance

In any given 1-year rolling period since 2003, small-, mid-, and large-cap stocks have outperformed 33%, 26%, and 41% of the time. However, the longer mid-cap stocks are held, the more often they outperformed. 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.

Lower Volatility, Better Risk-Adjusted Performance

Not only have mid-cap stocks generated higher absolute returns over a longer time frame, they have also provided these returns with less associated risk. Over the 20-year period ended 9/30/23, investors in mid-caps have experienced higher returns and lower risk relative to investors in small-caps. In addition, while mid-caps had more risk than large-caps, investors have been rewarded with a higher return over the same period.

Hennessy Funds’ “Dynamic Duo”

Consider increasing your clients’ mid-cap exposure through a combination of two complementary, Hennessy Funds.

Hennessy Cornerstone Mid Cap 30 Fund generally holds 30 purely mid-cap companies that exhibit both value and momentum attributes. The Fund has been managed since inception by Neil Hennessy.

Hennessy Focus Fund maintains a concentrated, high-conviction portfolio of 25 companies with approximately 60% to 80% of the assets in the top 10 holdings. The Fund’s three Portfolio Managers have been working together continuously on this Fund for nearly two decades.