Comparing Mid-Cap Indexes

A mid-cap index provides a benchmark for investors interested in gauging the relative performance of mid-cap stocks or investment vehicles that hold mid-cap stocks, such as exchange-traded funds (ETFs) and mutual funds. A mid-cap stock is defined as any equity security whose market capitalization, or market value generally falls between $2 billion and $10 billion. Some investment companies put the mid-cap range at about $3 billion to $10 billion. However, that range is not fixed, and its outer bounds are flexible. Despite those variances, mid-cap companies are generally in the middle of their growth curve and are expected to post sustained increases in their profits, market share, and productivity. Though not as risky as small-caps, mid-caps tend to be riskier than large-caps.

There are a number of mid-cap indexes used as benchmarks to gauge the performance of mid-cap investments. None of them shares the kind of dominance and popularity of the S&P 500 Index, which is the default benchmark for many large-cap stocks and funds. Indeed, the top three large-cap ETFs by assets under management (AUM) all track the S&P 500. By contrast, each of the top three mid-cap ETFs tracks a separate index. And within the top 10, there are four separate broad-based indexes that are tracked (there are other indexes but they are themed indexes, such as value or growth, rather than broad-based). This is based on data from ETF Database as of April 7, 2022.

Those four mid-cap indexes are:

• CRSP U.S. Mid Cap Index (CRSPMI1)
• Russell Midcap Index (RMCC)
• Dow Jones U.S. Mid-Cap Total Stock Market Index (DWM)
• S&P MidCap 400 Index (SP400)

Unlike the large-cap universe, there is no clear index leader for mid-caps and the four indexes listed above vary quite a bit. This makes mid-cap investing a little more challenging than large-cap investing. Understanding which index to use as a benchmark for a particular investment is important for knowing whether or not the investment is outperforming or underperforming. Below, we look at the four mid-cap indexes listed above in more detail in order to give investors a better understanding of which mid-cap index to use for which type of mid-cap investments.

^{Sources: data in rows from "Number of Stocks" to "Weight of the Top 10" is as of March 31, 2022, and is from: the CRSP U.S. Mid Cap Index; the Russell Midcap Index and iShares Russell Mid-Cap ETF, which tracks the Russell Midcap Index; the Dow Jones U.S. Mid-Cap Total Stock Market Index (download factsheet PDF); and the S&P MidCap 400 Index (download factsheet PDF); all total return data is from YCharts as of April 5, 2022; note that the total return data for the Dow Jones U.S. Mid-Cap Total Stock Market Index is based on the Schwab U.S. Mid-Cap ETF (SCHM), which tracks the index and has a fairly low expense ratio.}

Index Sector Breakdown

Each of the four major mid-cap indexes uses slightly different breakdowns of the major market sectors. For example, DWM uses a "Consumer Services" sector and a "Consumer Goods" sector instead of the more traditional "Consumer Discretionary" and "Consumer Staples" sectors. It also calls its "Energy" sector "Oil & Gas," and does not have a separate "REITs/Real Estate" sector. DWM and CRSPMI1 both use the old "Telecommunications" sector classification, which was replaced by "Communication Services" in 2018.

The rest of the differences in classification are minor, with a slightly different name such as "Materials" instead of the traditional "Basic Materials." Where there are differences in the naming of sectors used by the different indexes, we have indicated those differences in the corresponding cell within the table below. Also, take note that data for the sector breakdown was not available for RMCC and so the sector classification used by the iShares Russell Mid-Cap ETF (IWR), which tracks RMCC, was used instead as a proxy.

^{Sources: the CRSP U.S. Mid Cap Index; the iShares Russell Mid-Cap ETF; the Dow Jones U.S. Mid-Cap Total Stock Market Index (download Factsheet PDF); and the S&P MidCap 400 Index (download Factsheet PDF); all data as of March 31, 2022, except data for IWR (used for the Russell Midcap Index), which is as of April 7, 2022; percentage shares of sectors for each index may not add up to 100% due to rounding.}

^{Sources: ETF Database: the Vanguard Mid-Cap ETF (VO), the iShares Russell Midcap ETF (IWR), the Schwab U.S. Mid-Cap ETF (SCHM), and the iShares Core S&P Mid-Cap ETF (IJH); all data is as of April 7, 2022.}

Mid-Cap Indexes Analyzed: Defining a Mid-Cap

Based on the four mid-cap indexes analyzed above, it's evident that "mid-cap" is a market-cap classification with flexible boundaries. None of the indexes sticks to the traditional market-cap range of between $2 billion and $10 billion. Nor do they contain the same number of constituents, with RMCC being the largest outlier at 824 total stocks. There are also significant differences in the sector breakdowns for each index. This should also help illustrate that, though market capitalization is an important factor when analyzing stocks, the dividing lines between the size categories companies are placed in are ultimately arbitrary.

The index that most closely follows the traditional market-cap range is S&P 400. Its largest and smallest market cap are still outside the spectrum, but its range is the tightest compared to the other three indexes. S&P 400's range is from a low of $1.6 billion to a high of $17.3 billion. S&P 400's median and mean market caps are also somewhat close to the middle of the traditional classification range. In terms of sector breakdowns, S&P 400 gives a relatively high weighting toward industrials, at 18.7%, compared to CRSPMI1 and RMCC. However, that weighting is lower than the weighting for industrials used by DWM.

The only other index for which the mean and median fall within the traditional range is DWM. Its mean and median market cap fall just below the upper boundary at $9.1 billion and $8.0 billion, respectively. However, the stock with the largest market cap within DWM is well above that upper boundary, with a market cap of $40.0 billion. DWM is also the index that has the stock with the smallest market cap at $40.9 million. Considering sector breakdowns, DWM is notable for its extremely large weightings toward financials and industrials, at 24.0% and 20.9%, respectively.

RMCC has the stock with the largest market cap, at $61.4 billion. That probably helps to explain why the mean market cap of RMCC is $24.0 billion, more than double the upper boundary of a mid-cap stock's market-cap range.

However, using IWR as a proxy (because data was not available for RMCC), the weight of its largest constituent, as well as the combined weight of the top 10 constituents, is the lowest out of all the indexes. RMCC (again using IWR as its proxy) gives the largest sector weightings for information technology and healthcare compared to the other indexes. Information technology is the sector that receives the largest weighting within the index.

That skewing toward large-caps is most evident in CRSPMI1. The weight of its top 10 constituents is 6.7%, which represents the largest weighting out of all four indexes. To be sure, the $51.0 billion market cap of CRSPMI1's largest market-cap stock is lower than that of the RMCC, which is $61.4 billion, as mentioned. But both the mean and median market caps of CRSPMI1 are far above the traditional range for a mid-cap stock, at $18.2 billion and $19.0 billion, respectively. CRSPMI1 gives the largest weighting to utilities compared to the other three indexes. But the sector that receives the largest weighting by far in the index is information technology.

The Bottom Line

Investors have four main indexes from which to choose a benchmark for gauging the performance of their mid-cap holdings. None of the indexes is more dominant than the others because each of them is tracked by some of the biggest mid-cap ETFs. They also have unique characteristics, so they are not interchangeable. Each of the indexes includes stocks that are not traditionally considered mid-caps, with a few of the indexes actually having mean and median market caps significantly above the upper boundary of the traditional mid-cap range.

So though market cap is an important metric for investors to consider when looking at stocks, the boundaries of categories like "mid-cap" and "large-cap" are ultimately arbitrary, so that should be kept in mind. This is particularly clear in the mid-cap space where all four indexes vary widely in terms of their average market cap. The four indexes also vary both in their number of holdings and sector allocations. Investors should weigh all of these factors when choosing the index that meets their personal investing needs, taking into consideration their risk tolerance and their individual financial goals.