Consumers tend to be very familiar with the products and services offered by medium-sized companies such as Paddy Power, EasyJet and Puma. However, evidence suggests that investors tend to have limited exposure to the mid-cap segment of the equity market. Mid-caps account for 28% of the US equity market whereas they only accounts for 15% of the assets of equity mutual funds.

Mid-cap companies are those that have successfully made it past the initial start-up phase, where many companies fail but have not quite made the transition to the high profit stage yet. Investing in these companies just before they become more successful can be a rewarding and profitable experience.

Mid-cap companies are described as those stocks that have a market capitalisation of between €200 million and €7.5 billion. In many cases, mid-cap companies are as financially stable as their larger counterparts, but unlike a large-cap, they tend to offer greater growth potential as their businesses continue to develop from less-established entities to more mature companies.

The mid-cap segment is frequently overlooked by fund managers and analyst research coverage also tends to be less comprehensive than in the large-cap space. This ‘neglect effect’ creates an opportunity to potentially identify companies with high returns through detailed research.

Mid-cap companies typically offer higher earnings and cash flow growth potential than large-caps and mid-caps tend to present more unique investment opportunities because, due to their size, they tend to be more likely takeover candidates.

Investment in mid-sized companies generally involves taking greater risk than those in larger more well-known companies. Mid-cap equities tend to be less liquid than their large-cap peers and therefore the share price performance may be more volatile than large-caps.

Bloomberg figures show that between December 1992 and December 2012, Mid-caps offered better returns than small and large-caps and that return was delivered with less risk than small-caps. Risk is measured by the annualised volatility which was 17.5% over the period.

For personal investors, investing in mid-cap stocks is best done through a mutual fund that targets this sector.