Video - December 2025The Mid-Cap Opportunity in 2026
Transcript
Christian Kansler:
Portfolio Manager Mike Goodman breaks down why mid-caps are emerging as a compelling opportunity as we enter 2026.
Michael A. Goodman:
We think the mid-cap space is particularly attractive heading into 2026 for several reasons.
On valuation, mid-caps look extremely attractive versus the S&P 500. The Russell mid-cap index is trading near 20 year lows on the next 12 months enterprise value to EBITDA basis.
At an over 20% discount to the S&P 500 S multiple, and this is despite nearly identical estimated earnings growth next year for the two indices.
The S&P 500's multiples expanded in large part due to the outperformance of a select few fast growing mega cap companies, which we think has led to significant thematic and company-specific concentration risk with the top seven names in the S&P 500 now accounting for 35% of the Total index.
So after such a strong multi year run by a handful of large names, we encourage investors to look to improve diversification by looking at cheaper areas of the market.
In the mid-cap space you can find opportunities for exposure to secular growth themes. And company-specific catalysts at lower multiples, importantly, without sacrificing quality, versus many of the higher-growth, more speculative companies with high expectations that may already be embedded in their stock prices.
In addition, mid-caps should benefit from supportive economic, fiscal, and monetary conditions. The pro-growth policies and priorities easing of regulatory burdens have and should continue to benefit the domestically oriented companies that we tend to hold in the fund.
Also, a more favorable environment for merger and acquisition activity bodes well for mid-caps to create value as both an acquirer and or an acquiree.
So in summary, the combination of attractive valuation, supportive backdrops, and the need for investors to ensure adequate diversification makes for a unique opportunity to invest in a recently ignored asset class.
Christian Kansler:
Portfolio Manager Mike Goodman breaks down why mid-caps are emerging as a compelling opportunity as we enter 2026.
Michael A. Goodman:
We think the mid-cap space is particularly attractive heading into 2026 for several reasons.
On valuation, mid-caps look extremely attractive versus the S&P 500. The Russell mid-cap index is trading near 20 year lows on the next 12 months enterprise value to EBITDA basis.
At an over 20% discount to the S&P 500 S multiple, and this is despite nearly identical estimated earnings growth next year for the two indices.
The S&P 500's multiples expanded in large part due to the outperformance of a select few fast growing mega cap companies, which we think has led to significant thematic and company-specific concentration risk with the top seven names in the S&P 500 now accounting for 35% of the Total index.
So after such a strong multi year run by a handful of large names, we encourage investors to look to improve diversification by looking at cheaper areas of the market.
In the mid-cap space you can find opportunities for exposure to secular growth themes. And company-specific catalysts at lower multiples, importantly, without sacrificing quality, versus many of the higher-growth, more speculative companies with high expectations that may already be embedded in their stock prices.
In addition, mid-caps should benefit from supportive economic, fiscal, and monetary conditions. The pro-growth policies and priorities easing of regulatory burdens have and should continue to benefit the domestically oriented companies that we tend to hold in the fund.
Also, a more favorable environment for merger and acquisition activity bodes well for mid-caps to create value as both an acquirer and or an acquiree.
So in summary, the combination of attractive valuation, supportive backdrops, and the need for investors to ensure adequate diversification makes for a unique opportunity to invest in a recently ignored asset class.
