Growth Is In The Eye Of The Index Provider

Many clients have been asking us this year about U.S. mid-caps. Over WisdomTree’s live history extending back to 2006 for mid-cap dividends and 2007 for mid-cap earnings, the performance of U.S. mid-caps has been robust, as discussed below. However, for those looking at 2017, the picture hasn’t been nearly as strong.

What, if anything, has changed?

Growth Style Comes into Favor—Heavily

“Growth” has been the way to go in the first nine months of 2017.

WisdomTree’s U.S. MidCap Dividend Index, though broad-based, won’t include any companies that don’t pay regular dividends, thereby biasing away from the growth style. WisdomTree’s U.S. MidCap Earnings Index, though broader, won’t include speculative firms that have not yet generated positive core earnings. In other words, both of these Indexes have somewhat of a quality bias.

But also among growth style, there were some interesting factors at play in 2017.

Outperformance of Mid-Cap Growth—Specifically Russell Midcap Growth

Mid Cap Index Growth Outperformance

Through September 29, 2017, the Russell Midcap Growth Index outperformed the S&P MidCap 400 Growth Index by 5.29%. Given that they are both U.S. mid-cap Indexes focused on the growth style, this is a large performance gap. To find another nine-month period where Russell outperformed to a similar or greater extent, we had to go back to the summer of 2003—about 14 years ago!

Beyond that, we looked at rolling periods back to June 1995 to figure out how unusual outperformance of the Russell Midcap Growth Index over the S&P MidCap 400 Growth Index actually was. The Russell Index won only about 39% of the time in the analysis of rolling nine-month periods. As the rolling periods lengthened, it became less and less likely to see the Russell Index outperforming the S&P Index.