Keep an Eye on Mid Cap Stock Trends

After a 7-year run of healthy returns compared to large cap stocks, mid cap stocks fell behind both large and small cap stocks in 2006. Despite regaining their lead in the first quarter of 2007, T. Rowe Price reports that some analysts believe that mid cap stocks may be losing their momentum to large cap stocks, yet again.

In 2006, mid cap stocks rose 10.3% compared with a 15.8% return for large cap stocks and 18.4% for small cap stocks. T. Rowe Price states that small and mid cap stocks traditionally have a more inconsistent cycle than large cap stocks. However, this current cycle has exceeded historical averages. Does this downward trend in mid caps suggest that investors should switch to large cap stocks? Fund managers feel that mid caps still have better growth potential, pointing out that strong mid cap companies with potential are still available in areas such as health care, paper, and technology.

Because smaller companies have limited product lines, markets, or financial resources, T. Rowe Price suggests that investors remember that investing in small and mid cap companies involves greater risk than investing in large cap companies.