Add Some Middle to Your Portfolio
Discover how the Russell Midcap Index can enhance your portfolio with diversification, US-driven revenue exposure and strong growth potential.
The landscape for US mega-cap stocks is evolving, with elevated valuations causing investor uncertainty about their future. Concerns are rising over growth prospects for these large companies, especially with prolonged high interest rates and significant AI spending potentially impacting returns.
The "Magnificent Seven" tech giants, which made up nearly 19% of the FTSE Global All-Cap Index by the end of 2024, are a particular focus. Consequently, many investors are reallocating funds towards equal weighting or other assets and are increasingly considering mid-cap stocks as an alternative.
Mid-cap companies present a compelling mix of stability and growth, often overlooked by Wall Street analysts. These firms are in a "sweet spot," offering more agility and higher growth potential compared to their larger counterparts, while providing greater diversification and stronger balance sheets than smaller firms. This makes mid-caps an attractive option for those concerned about concentration risk in indices like the Russell 1000.
To add depth to our discussion of mid-caps, here we examine valuations trends and exposure to US-generated revenues.
Key characteristics of the Russell Midcap Index
The Russell Midcap Index includes:
About 800 stocks making up 21% of the broader Russell 3000 Index by market cap.
Companies in this index are much smaller than those in the Russell Top 200, with an average market cap of $29 billion compared to nearly $1.3 trillion.
Despite being smaller than mega-cap companies, US mid-cap firms are still quite large on a global scale.
Source: FTSE Russell, data as of December 31, 2024. (% market cap of Russell 3000 Index).
US mid-cap stocks have historically performed well and are a great way for investors to diversify their portfolios. Unlike the Russell Top 200 Index, which is heavily focused on Technology, the Russell Midcap Index is more evenly spread across various industries. This includes key sectors like Industrials, Financials, Real Estate, and Utilities, providing broader exposure to the US economy.
ICB Industry Weights
Source: FTSE Russell, data as of January 31, 2025.
In alignment with this theme, we see notable differences between the top 10 holdings of the Russell Top 200 Index and the Russell Midcap Index.
Source: Source: FTSE Russell, data as of January 31, 2025.
Mid-cap stocks offer greater exposure to US-driven revenues
The US market continues to show strong growth prospects. For investors looking to focus on US growth opportunities, considering mid-cap stocks might be beneficial. As of December 31, 2024, companies in the Russell Midcap Index generated only 24% of their revenues from outside the US, compared to nearly 44% for companies in the Russell Top 200.
Consider the Russell Midcap Index for a diversified portfolio with exposure to US Industrials, Real Estate, Utilities and innovation, while reducing concentration risk found in the Russell 1000/Top 200. It's a viable investment strategy for your wealth portfolio.
To diversify your portfolio, explore mid-cap diversification opportunities and FTSE Russell Insights.
See a list of ETFs currently indexed to FTSE Russell indices, click here .
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