Midcap stocks are shares of those companies with market capitalisation between NZ$2 billion and NZ$10 billion. These stocks generally lie between smallcap and largecap companies. These companies can be attractive to investors as they are likely to grow and increase their productivity, market share, and profits.
These companies are hybrid of largecap and smallcap companies, providing a balance of stability and returns.
Some midcap firms may be near the developmental stage and provide greater stability instead of returns. In contrast, some midcaps might have taken a step up from smallcap firms, subsequently providing greater returns than stability.
The S&P/NZX family of indices assesses the performance of NZX-listed companies across various industries, sizes, themes, and approaches. Every index is created to represent a specific segment of the NZ equities market. However, only stocks that are listed on the NZX Main Board of the New Zealand Exchange are deemed to be included in any of the S&P/NZX NZ Indices.
S&P/NZX MidCap Index is the main index of New Zealand and has been designed to measure the performance of NZ’s core mid-cap equities. The eligible equities are drawn from the components of NZ’s benchmark S&P/NZX 50 Index. However, it excludes the elements of the S&P/NZX 10 Index.
The index was launched on 7 April 1997, and float-adjusted market capitalisation is used as the weighting method. S&P/NZX MidCap index has 38 constituents and has a mean total market capitalisation of NZ$1963.4 million as of 30 September 2021. The top 10 constituents weigh 53.1% of the index.
The real estate sector has the largest weighting of 22.8% in the index, followed by the healthcare and utility sector, weighing 21.5% and 13.6%, respectively.
Investing in Midcap stocks
Adding midcap stocks in a portfolio can help investors in diversification while also helping them in improving their portfolios. They can also provide many other benefits.
These firms generally perform well during the growth phase of the business cycle. Growth in corporates generally remains stable when capital is cheap, and interest rates remain low. Subsequently, midcap firms can obtain loans at a low cost to meet their expansion needs and grow ahead.
Moreover, investors can learn about the company through research as mid-cap firms have been operating for longer than smaller firms. They have a longer track record and are more reliable.
Midcap firms are also considered less risky than smaller firms as they do well financially in times of crisis and focus on one specific business. These companies also have room for value appreciation and the ability to provide dividends as they stand in the middle of their growth process.
However, there are certain risks associated with midcap stocks. For example, some of the midcaps might be showing remarkable performance due to an unstable financial bubble. So, investors must be careful when picking midcaps that performed well and check their financials before the bubble as well. These companies are also prone to having less efficient managerial and organisational structures than largecap firms.
Most of the investors miss investing in midcap stocks as these companies get less coverage by analysts than largecap companies. Kiwis can also invest in mutual funds or ETFs alternatively.
Overall, Kiwis can gain substantially from investing in nzx midcap stocks if they can adequately gauge which stocks are likely to grow and whose earnings are most likely to be sustainable in the future at an early stage. However, they must take care of the risk associated with them.
The percentage of nzx midcaps that an investor wants in his portfolio can differ as per his risk tolerance levels and certain investment goals.
Published by Kalkine