Mid-sized companies don't get much respect.
They're too big to carry the "hidden gem" appeal of small stocks and too small to dominate headlines the way Apple or NVIDIA do. Wall Street coverage is thinner. Investor attention wanders. And yet, since its 1998 inception, MidCap Index (VIMAX) has outpaced 500 Index (VFIAX) by nearly one and a half percentage points per year—10.3% to 8.9%.
That's not a rounding error. Over nearly three decades, that gap compounds into a meaningful difference in wealth.
But those returns didn't arrive in a straight line. Mid-sized stocks dominated in the 2000s, then spent much of the past 15 years trailing larger stocks.
That's investing. Even if you believe a segment of the market will outperform over your lifetime, you should expect long stretches where it disappoints.
The same lesson I drew in my recent look at small stocks applies here: Markets are cyclical, leadership rotates, and patience matters.
Still, I believe mid-sized stocks deserve investors' attention today—precisely because they've been out of favor.
That same lack of Wall Street coverage that keeps mid-caps out of the headlines should, in theory, create fertile ground for active managers. Less analyst attention means more mispriced stocks. More mispriced stocks mean more opportunity for a skilled stock-picker to add value.
The problem is that Vanguard's active mid-cap funds haven’t delivered on that promise in years.
Unlike some corners of Vanguard’s lineup, there isn’t an obvious active manager to champion in the mid-cap growth space. So, for now, my top pick remains a simple low-cost index fund.
But let’s walk through the lineup.