 Personal Finance PowerPoint Presentation Mid-Cap Fund Prepare to get financially fit by practicing personal finance. Most of this information comes from Investopedia Mid-Cap Fund, which you can find online. Take a look at the references, resources, continue your research from there. This is by James Chen, updated May 5th, 2022 in prior presentations. We've been looking at investment goals, strategies, tools, keeping in mind the two major categories of investments, that being the fixed income, typically the bonds, the equities, typically the common stock, also thinking about tools we might be using such as mutual funds, such as ETF, possibly to help us to diversify with less of an initial investment as opposed to investing in individual stocks, individual bonds. So we're asking now, what is a mid-cap fund? A mid-cap fund is a pooled investment vehicle, e.g. a mutual fund or ETF, that explicitly invests in the stocks of mid-cap companies or companies with market capitalizations, ranging from approximately $2 billion to $10 billion. So we've talked about mutual funds in the past. That's where we're going to be putting money into a fund that's going to be managed by the fund manager, and hopefully they can invest in multiple different investments, which will give us some diversification. If we're moving from individual stocks, individual bonds that we are investing into, using tools such as mutual funds and ETFs, then the question is, do we want to invest in one mutual fund that might be very broad in its nature, hopefully getting us and allowing us to diversify with that one fund, or do we want to basically be looking at different segments of the investments and try to have multiple funds that can be built up to an overall portfolio, possibly giving us a little bit more control over our investments. So for investing in multiple kind of mutual funds, we might limit then the control of one mutual fund to a specific type of investment, such as the mid-cap. And when we're thinking about the mid-cap, we're thinking about companies with market capitalizations ranging from approximately $2 billion to $10 billion, and that's actually somewhere in the middle because we're talking about publicly traded companies, those companies that have decided to be traded on the public exchanges, and we're trying to get a feel for how large those companies are. So understanding mid-cap funds. Mid-cap funds provide a diversified portfolio of mid-cap companies for investors. Mid-cap stock funds invest in firms with established businesses. Therefore, these companies have made equity capital markets a substantial part of their capital structures. Overall, mid-cap companies tend to offer more growth potential than large cap stocks and with less volatility than small cap stocks. So when we think about the business cycle of a company, it might look something like this, right? We're going to say, okay, it's going to go up like this and it's going to flatten out at some point in time. So we would think that if this company then was down here, you might have a higher growth rate if it continues to grow, although you might have more risk at that point in time. If you're talking mid-cap, you might be thinking somewhere around here, you think maybe it might be a little bit more flat in terms of the growth at that point in time, and one way to kind of consider that is you would think, well, the small companies, if you're thinking about Apple, for example, as they were growing, then have to put a lot more investment in the company, generate capital revenue, in other words, to build factory plant and equipment to make what they need to make, and therefore they're growing rapidly at that point in time and have huge potential for future revenue. Once we get somewhere around the mid-cap, you would think, okay, they still have room to grow at that point in time, but you would think they're not going to grow at that huge rate they would when you're going from small to maybe mid-cap. Therefore, you would think that the returns would be lesser maybe, but less volatility because they've already proven themselves at the same point in time to some degree. And then, of course, if you're talking about these companies that are well-established already, possibly Apple at this point in time or like a utility company, then they're not really buying a lot more property, plant, and equipment at that point in comparison to their current size, at least, and therefore you wouldn't expect them to be growing as much, but to be marching along fairly well and to be giving possibly their revenue out in fairly stable dividends. So that's going to be the general idea. Mid-cap funds seek to capitalize on this capital appreciation potential by creating funds that are diversified among mid-cap companies. Many funds, companies, and indexes focus on mid-cap stocks with an additional component such as a growth or value. Mid-cap funds can be actively managed or passively managed. So in other words, you might have a mid-cap fund where you're saying, I want to give control to the fund manager to try to find the best deals within the mid-cap area, or you might say, hey, look, I'm not sure the fund manager can beat the index, the average of the mid-cap area, so I want to just bet on the average, meaning you might have an index fund, for example, for mid-cap funds. So the mid-cap segment of the market offers a wide range of investment opportunities for investors. Some of the mid-cap segments, most popular benchmarks are the S&P mid-cap 400, the Russell 1000 mid-cap index, the Wilshire US mid-cap index. As of December 2020, the smallest member of the Wilshire US mid-cap index was valued at $0.8 billion. The largest had a market capitalization of $23.4 billion. Defining mid-cap, so what does mid-cap mean? Mid-cap is the term given to companies with a market capitalization or value between $2 billion and $10 billion. So that's going to be kind of in the middle of our calculations for this kind of grouping of the categories. So as this name implies, a mid-cap company falls in the middle between large cap or big cap and small cap companies. Classifications such as a large cap, mid cap, and small cap are only approximations and may change over time. So obviously when we're looking at these approximations, you want to get a general idea of what they mean. We're talking large companies, mid companies, small companies. If you get into the weeds in terms of where that line is drawn, it can get a little kind of cloudy. And again, they're just kind of drawing an arbitrary line, obviously, just like we would if we're making a law for when are people adults? Should we be able to drive? When you're able to drink or so on, does it make any sense that 21 is an age? No, they got to just draw a line at some place. So most financial advisors suggest that the key to minimizing risk is a diversified portfolio. Investors should have a mix of small cap, mid cap, and large cap stocks. So we probably, in other words, don't want all our money and just one mid cap fund even though it's diversified across the mid caps because we want to diversify further over a broader spectrum such as most likely we want the large caps as well and the small caps as possibly do. However, some investors see mid cap stocks as a way to diversify risk as well. So small cap stocks offer the most growth potential, but the growth comes with the most risk. Large cap stocks offer the most stability, but they offer lower growth prospects. Mid cap stocks are a hybrid of the two, providing both growth and stability. Benefits of mid cap funds. Mid cap funds have some advantages over both individual mid cap stocks and other fund types, while less volatile than small cap stocks, holding only a few mid cap funds is usually much riskier than holding several large cap funds. So in other words, if you're looking at the mid cap, then you're kind of in the middle which would be kind of a nice sweet spot you would think, but if you just own individual mid cap stocks, that would still possibly be more risky than owning a mutual fund of small cap stocks because although the mid caps are less risky in general, if you own only a few of them as opposed to a fund of them, then you still may be taking on more risk than even if you're in the small cap mutual fund, for example. By investing in a mid cap fund, investors can capture the growth potential of mid cap funds without company specific risks. So mid cap funds can follow a somewhat different pattern than either large or small stocks because of this, they are useful for portfolio diversification. Historically, there have been long periods when either large or small stocks outperformed, choosing a mid cap fund can prevent investors from going too far in the wrong direction. So oftentimes, if we look at like the environment that we are in in terms of economic and political environment, sometimes we're in a phase where the large cap stocks are just doing really good and they might be merging together and the large cap looks like all the big companies are gonna control the world shortly and sometimes you can go over into other times when it's like, wow, those large companies really messed up, they became too large or they became mismanaged or they became that they were too tied in with the government and they finally broke it up or something like that. And in those cases, you would think maybe the small caps, the environment of the small caps might pick up and of course, again, you would think the ones in the middle are gonna be less likely to hit those kind of big swings that might be more likely to hit either the big guys or the small guys. But in any case, criticism of mid cap funds. By investing in mid cap fund rather than holding individual mid cap stock, investors can miss out on massive gains. In particular, the CAN-SLIM system developed by William J. O'Neill is often applied successfully to mid cap stocks. So clearly, if you're looking at mid cap stocks, and if you're investing in like an index fund, then you have an average kind of investment. If you're trying to pick individual stocks, you might have some capacity to pick some more outperforming stocks in the area. So the idea is that winning stocks can be spotted on their way up through the small caps. By the time stocks reach the mid cap fund, the speculators are ready to profit. So in other words, you might have a system here where they're thinking, well, if they've risen up through the small caps and are going into the mid caps, then that might be the stocks that are kind of on the rise, for example, and maybe you can do a little bit more picking and choosing of those particular stocks. That would, of course, take a lot more strategic investment strategy as opposed to picking like a diversified portfolio in general for an average investor over a long time frame, possibly for like retirement, for example. So for example, or Neelflag Netflix as a top pick in 2009, however, most investors are less successful at picking winners. So the fact that he picked A, they point out here, and this is what's kind of funny when people try to promote their track record. They're only going to promote the good things that they did, right? And if they don't have a whole lot of data points, it's really hard to determine if someone's track record is really good over the long run, because it's kind of like looking at someone's social media profile page and like, that person looks like they're wonderful. They're the best person in the world. Well, yeah, that's because they only report the good stuff, and they might not even be true. Anyway, examples of mid-cap funds. Here are some examples of market's top mid-cap funds. So you've got the BlackRock Mid-Cap Growth Equity, the BMGAX, the BlackRock Mid-Cap Growth Equity Fund is an actively managed mutual fund, so it's not an index. You've got a manager involved. It seeks to invest in mid-cap companies from the Russell Mid-Cap Growth Index that it believes has superior growth characteristics. So it's picking from that index, trying to beat, in essence, kind of like the index because it's actively managed. As of June 16, 2021, it had a year in net asset value in AV, returns of 4.99%. The fund is benchmarked to the Russell Mid-Cap Growth Index, which had a year-to-date in AV return of 5.3% as of June 16, 2021. The fund had a gross expense ratio of 1.14%, and a net expense ratio of 1.05% for A shares. So Convert Mid-Cap ETF VO. This is the Vanguard Mid-Cap ETF. So the Vanguard Mid-Cap ETF is one of the largest passive index funds in mid-cap market segments. So now we've got an index fund. So that means that they're not actively managed, right? They're taking the average, or what they think is the average of the pool, in essence, and just investing in that, which should lower the costs of the investment for them to manage the fund. The fund uses an index replication strategy to track the holding and performance of the CRSPUS Mid-Cap Index. So as of June 17, 2021, the fund has a year-to-date in AV return of 13.73%. The fund had an expense ratio of only 0.04%. That's nice.