Some thoughts about Europe Mid Cap Stock Index

Academic researchers have been studying the small cap premium for more than 30 years. A 1981 paper by Rolf Banz argued that “smaller firms have had higher risk-adjusted returns, on average, than larger firms”. This performance difference has come to be known as the “size effect” or the “small cap premium’”.

The academy’s models insist that small caps are destined for higher performance over the rest of the field. But the track record over the last 20 years has thrown out the script and awarded the gold to mid-caps.

If we compare the performance results of the last 20 years between the Russell Small Cap Index, the Russell Mid Cap Index and a Large Cap Index as the S&P 500, a buy and hold strategy sees the Mid Cap Index as the winner (+381%, vs. 299% of Small Cap Index and +196% of S&P 500).

The same history can be found in Europe, even if the Mid Cap Index and the Small Cap Index have a lower performance difference compared to the USA Indexes.

But in term of relative strength, the Europe Mid Cap Index is stronger than the Large Cap index since 2000, while the Russel Mid Cap Index has the same Relative Strenght Ratio of the S&P 500 Index starting from 2011 (see upper window on graph 1 and 2).

Another interesting detail about the European Mid Cap Index, is that since the 2015 crisis it had a higher high price curve (a), compared to the Stoxx 600 which instead had decreasing peaks (b).

Since 2017, looking at the five European Mid Cap country indexes that weight the 70% of the Stoxx 200 Mid Cap Index, we can note that the best over performers are the Swiss Mid Cap stocks, followed by France, Germany and Uk Mid Cap Indexes.

Mario Valentino GUFFANTI CFTe – SAMT Vice President – Swiss Italian Chapter – mario.guffanti@samt-org.ch

Disclaimer: the above article is for general information and educational purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.