Mid vs. Large Mutual Funds
Original post by Geri Terzo of Demand Media
Whether a mutual fund is mid-cap or large-cap refers to the type of companies in which the fund invests. A large-capitalization mutual fund buys into stocks of companies that have a market capitalization of $10 billion or more, while a mid-cap fund invests in businesses that have a market cap of between $2 billion and $10 billion. Mutual fund firms use different scales to determine which stocks are eligible to be in a particular investment portfolio based on size.
Market capitalization is the overall market value of a company. It is determined by multiplying the number of shares available for trading by the current stock price. Mutual funds invest in baskets of stocks on behalf of many investors. A fund's strategy is defined in its prospectus, which is where investors can learn about fund strategy and whether a firm limits its portfolio investments to a certain-sized stock.
Stocks that belong under the mid-cap designation are often transitioning from either small cap or large cap categories. Subsequently, the mid-cap grouping is somewhat blurred. A common breakdown includes companies that have a market cap of between $2 billion and $10 billion. Some mid-cap mutual funds also invest in large-cap companies because of the tendency for overlap in the two categories.
Large-cap mutual funds invest in companies with the biggest market caps the equity markets have to offer. Companies that fit the large-cap designation are worth at least $10 billion by most standards. Mutual funds often trade according to some benchmark index, which allows investors to gauge performance. The Fidelity Large Cap Stock Fund trades comparably to both the Russell 1000 index and S&P 500 indexes.
In 2011, as the economy showed sings of moderate expansion following an economic recession, market experts anticipated an influx of capital into large-cap stocks. Large companies were trading relatively cheaply and were poised to benefit from having a global presence. During the first quarter of the year, mutual funds that invested in mid-and-small sized stocks generated returns of between approximately 7 percent and 9 percent. Large-cap mutual fund returns, however, were below 6 percent, according to data company Lipper.
- "U.S. News and World Report"; Best Mid-Cap Blend Funds For the Long Term; Ben Baden; January 2011
- Fidelity Investments: Fidelity Large Cap Stock Fund (FLCSX)
- "Los Angeles Times"; Small-and-Mid Cap Stock Funds Lead the Way; Tom Petruno; April 2011
About the Author
Geri Terzo is a business writer with over 15 years experience reporting on Wall Street. Her coverage ranges from institutional investing, including hedge funds and investment banking, to family topics and her career experience includes work for Fox Business, CNBC and "IDD Magazine." Terzo is a graduate of Campbell University, where she earned a B.A. in mass communication.
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