Average capitalization (medium caps)

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Mid-capitalization companies or medium caps are those companies listed on the financial markets that are characterized by having a mid-market capitalization.

The market capitalization value that is considered to define a company as a medium cap can vary between different sources of information. However, and in a general way, the limit could be set between $ 2 billion and $ 10 billion. So any company in this range could be a medium cap.

As its name suggests, medium cap is between small cap and large cap.That is, they will have a higher capitalization than the small cap and a lower one than the large cap. Or what is the same, that the companies of low and high capitalization.

Advantages of investing in medium caps

There are a number of advantages of mid-cap companies over smaller ones. Among the most important are:

  • Lower risk. Medium caps are companies that tend to show some degree of business consolidation compared to small caps. Therefore, their sales volume or client portfolio, usually have a more solid base than others of smaller size. Hence, the volatility of these companies is lower. And therefore, they are considered to have less risk than small cap.
  • Diversification effect. Many investors choose to build a small, mid and large cap portfolio to diversify their investment portfolios. But by investing only in medium cap, that degree of diversification could also be achieved. This is because they have properties in terms of profitability and risk similar to the other two. On the one hand, we would obtain the advantage of a greater capacity for growth that identifies the small cap. And on the other, greater stability or less volatility typical of large cap. All this means that the mid cap could have an optimal combination of profitability and risk.

Disadvantages of the Medium Cap

The main drawbacks or disadvantages of these companies have their nature in the comparison with small and large cap. The difference is the size.

  • On the one hand, and compared to the small cap, the larger size hurts it. This implies that by being larger in size, perhaps the potential for earnings growth is lower. Therefore, an investor who wants to obtain a high return, will prefer to invest in small cap.
  • On the other hand, and compared to the large cap, the disadvantage comes from a smaller size. In this case, being smaller usually implies that you have a less stable business base. And this is considered in the market as riskier or volatile companies. An investor who seeks stability or is more averse to risk will seek to invest in large cap for his investment portfolio.

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