Not too big, and not too small. Applying a “medium-sized” strategy to your portfolio has the potential to generate attractive long-term growth and income opportunities. We examine how investors can achieve a number of strategic advantages by harnessing the potential of mid-caps, with a longer-term view to growth.
As markets come out the other side of a pandemic defined by uncertainty and an increase in risk-averse behaviour, investors are looking to reset their objectives while acting on the lessons they have learned from such a period of volatility.
Traditionally, large-caps have represented the solid option for investments. They hold all the advantages of a proven track record, healthy liquidity levels and resilience during periods of instability – a logical strategy for investors looking to regain traction slowly and steadily following the economic shocks of Covid-19.
However, recent performance indicators underline a remarkable period for the JPMorgan Mid Cap Investment Trust plc (JMF). Benchmarked against the UK’s FTSE 250, the investment trust specialises in medium-sized UK companies as its key investment targets, while also exploring selected opportunities arising out of the London Stock Exchange’s Alternative Investment Market for growing companies.
While past performance is not a reliable indicator of current and future results, figures to 31 August 2021 show that JMF has secured a very strong cumulative share price performance of 73.75%, 94.51% and 432.29% over 1, 5 and 10 years. Cumulative NAV performance over the same time period has been 53.03%, 78.84% and 331.60%1.
This impressive performance record has been attributed to a combination of highly-targeted stock selection by the fund’s investment managers, and strategic borrowing (gearing) efforts.
Mid-caps recipe for success
Clearly, there is untapped investment potential among some of the UK market’s exciting mid-sized companies. But what are the characteristics that make mid cap stocks a healthy addition to portfolios?
As the economy reboots from the pandemic, many nimble mid-cap stocks are well-positioned to capitalise on the growth opportunities that arise. They are big enough to have established themselves with investors; yet small enough to maintain sufficiently agile business models and often outpace the fortunes of large-caps.
Attractive mid-cap stocks have a developing track record of solid sales growth, which demonstrates long-term sustainability, but they also in parallel enjoy increasing profitability – this is the ideal mix for a subsequent increase in stock value.
Consumer is king
Among its highly diverse portfolio of companies, JMF is notable for high-performing consumer and integrated media brands – among them Future plc, producers and curators of content for over 200 brands, spanning tech, hobbies, home interest and entertainment.
Balancing these out are a range of tech companies, financial, utilities and real estate stocks that make a compelling investment case for those seeking out strong long-term returns. The growth potential in areas such as home improvement and cloud-based IT solutions, for example, puts these mid-cap companies in prime position to benefit from the post-pandemic recovery, and catch the attention of far-sighted investors.
Flexing to fit
The JMF trust mainly invests in a varied pool of strong FTSE 250 mid-cap stocks.There is substantial legroom to shift in different directions when circumstances allow, including investing in the Alternative Investment Market – a source of smaller high-growth firms in fields as varied as biotech and data technologies that have the potential to achieve a market break-through. At the other end of the scale, the trusts looks to hold onto stocks that grow to reach the large-cap FTSE 100 index. As well as keeping trading costs down, this is a valuable way to ensure that the knowledge built up around these stocks is not lost.
An attractive risk-reward balance
By focusing on identifying untapped opportunities among mid-cap firms, JMF provides a solid investor proposition with the potential to generate attractive long-term returns. While mid cap stocks may experience greater volatility, the fund is well diversified and has the flexibility to adjust its positioning at any point in the market cycle to keep risks in check.
1 Share price quarterly rolling performance (%) as at 30/06/2021: 2016/17 = 23.43%, 2017/2018 = 27.39%, 2018/2019 = -11.44%, 2019/2020 = -15.02, 2020/21 = 65.12. Benchmark: FTSE 250 Index (ex Inv Trusts) (£)
