This article examines the best and worst performing mid-cap stocks in 2019.
By examining the tails of the return distribution, we can gain improved insight into different portfolio return drivers.
Up 26%, it was a good year in absolute terms for mid-cap stocks, but a bad year in relative terms versus large-cap stocks which gained 31%.
The best and worst performing decile of stocks saw extreme returns as detailed herein, which may provide fodder for opportunistic stock pickers.
In a pair of recent articles, I have covered the best and worst performing S&P 500 (SPY) stocks of 2019, as well as the best and worst performing small-cap stocks (IJR) of last year. This article completes this mini-series by examining the best and worst performing mid-cap stocks. By examining the extremes of the return distribution, we can glean insights into the themes driving broader market returns.
In the table below, I have listed the 40 worst performing current S&P Mid-Cap 400 constituents over the course of 2019.
In 2019, it was the large-caps leading the way at a 31.5% total return, including reinvested dividends. Small caps (IJR) lagged at a 22.8% total return. Mid-caps (MDY) slotted in between at a 26.2% total return.
The worst performing decile worked roughly the same way. The equal-weighted return of the 50 worst performing S&P 500 stocks was a fairly modest -10%. The equal-weighted return of the 40 worst performing S&P Midcap 400 stocks was -29%. The equal-weighted return of the 60 worst performing S&P SmallCap 600 stocks was -45%.
The equal-weighted market capitalization of the mid-cap laggards list of $2.5B is below the median market capitalization of the mid-cap index ($5.4B) and the mid-cap leaders list ($6.1B). Underperforming mid-cap stocks tended to be of smaller size. While some of the balance sheets of the mid-cap stocks are stressed, there is less of the debt overhang that populated the small cap laggards.
On the other side of the return distribution, the best performing decile of mid-cap stocks returned an equal-weighted 97%. As one should come to expect from this article, that ranked between the average return of the top performing large cap decile (76%) and the average return of the top performing small cap decile (109%).
Like the large-cap index, Technology stocks were the most frequent sector on the leaderboard. Of the top performing decile of mid-cap stocks, tech represented a whopping 41% of the market cap. In the large-cap index, that figure was even higher (76%) as the nearly 50% return of tech drove the large cap index returns.
In a related note, the last year marked the third straight year of underperformance for the mid-cap index versus the large cap index, its longest streak of underperformance since the mid-to-late 1990s run-up to the tech bubble. While this article painted mid-caps as stuck in the middle between the high-flying large caps and the lagging small-caps, mid-caps have demonstrated relative leadership in past downturns.
Mid-caps showed a wide distribution of returns in 2019, but the tail of the distribution was not as ugly as in the small-cap space where there is a narrower distance to default. I hope this last piece of the series on 2019 performance can aid potential stock pickers sifting through either value opportunities or potential momentum stories.
Disclaimer: My articles may contain statements and projections that are forward-looking in nature, and therefore inherently subject to numerous risks, uncertainties and assumptions. While my articles focus on generating long-term risk-adjusted returns, investment decisions necessarily involve the risk of loss of principal. Individual investor circumstances vary significantly, and information gleaned from my articles should be applied to your own unique investment situation, objectives, risk tolerance, and investment horizon.
Disclosure: I am/we are long SPY,IJR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: While not long MDY, I do have exposure to low volatility mid-cap (XMLV) and mid-cap dividend growth funds (REGL).