Mid-sized companies, often overlooked in favor of their larger counterparts, may be poised to take the spotlight in the market. While they’ve struggled to keep pace with large-cap stocks in recent years, they possess certain advantages that could propel them to outperform in the future. One key benefit is their domestic focus, which shields them from the far-reaching consequences of global turmoil, such as Middle Eastern unrest, Russian aggression, and Chinese economic uncertainty. Additionally, their valuations are relatively modest, with the Russell 2000 Small-Cap Index boasting a price-to-earnings ratio of 14, significantly lower than the S&P 500’s trailing P/E of over 25. Historical data also suggests that mid-sized companies can experience prolonged periods of outperformance, as seen from 2003 to 2021 when the Russell 2000 Index surged 450%, outpacing the S&P 500’s 330% gain. However, it’s essential to acknowledge the inherent risks associated with mid-sized stocks, which have exhibited higher volatility, with a standard deviation of 5.7% for monthly returns compared to 4.3% for large-caps during the same period.
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