Mid vs. Large Mutual Funds

by Geri Terzo

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.

Identification

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.

Mid Cap

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

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.

Returns

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.

About the Author

Geri Terzo is a business writer with more than 15 years of experience on Wall Street. Throughout her career, she has contributed to the two major cable business networks in segment production and chief-booking capacities and has reported for several major trade publications including "IDD Magazine," "Infrastructure Investor" and MandateWire of the "Financial Times." She works as a journalist who has contributed to The Motley Fool and InvestorPlace. Terzo is a graduate of Campbell University, where she earned a Bachelor of Arts in mass communication.

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