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Market Insights - February 2018

Market Insights - February 2018

Where to Invest in 2018 & Why Sometimes it Isn't Bad to Have a Growing Middle

Traditional asset allocation advice holds that investors should allocate their equity exposure to the broad market, not just a smattering of individual stocks. Most investors achieve this with exposure to large-cap stocks though the S&P 500 index or other vehicles that aim to match or beat that index over time. This part of the market has provided the best returns over the past 5 years as the stocks of companies such as Facebook, Amazon and Google drove the S&P 500 index higher.

However, if you are only investing in large-cap stocks, you are missing out on a set of stocks called mid-caps. Over the trailing 10, 15 and 20-year periods (see chart below) mid-caps have far out-paced their larger-cap brethren on an annualized basis. Mid-cap stocks are generally defined as companies with market capitalizations between $1 billion and $12 billion. This represents over 1300 US firms or roughly 46% of publicly listed U.S. stocks.(Source: Bloomberg Finance L.P., as of 12/10/2017. Universe defined as constituents of the SSGA Total Market Index.)

One way to access this segment is to own the S&P MIDCAP 400 (symbol MDY). If you already hold this ETF, fantastic! If not, you can look for us to add this or a similar position to your portfolio in the coming months. In case you’re thinking that you won’t know any of the companies that make up this index like you do for the S&P 500, here is a list of some of the companies and what they do:

  1. Toll Brothers – Builder of homes and communities across the U.S.
  2. Dunkin Brands Group – Founded in 1950 and currently operates over 12,000 Dunkin’ Donuts and Baskin Robbins ice cream restaurants in 45 countries.
  3. Cracker Barrel Old Country Store – Founded in 1969 in Tennessee. The restaurant serves up home-style country food and their signature biscuits using an old family recipe. Locations also include an authentic old country retail store offering unique gifts and self-indulgences.
  4. Bed Bath & Beyond Inc. – Founded in 1971, the company and subsidiaries (World Market, Christmas Tree Shops, et al.) offer a wide selection of domestics merchandise and home furnishings.
  5. Tootsie Roll Industries – The number one-selling chewy chocolaty candy in America. It has been made with the same recipe since 1896!

As we move forward in 2018, look for us to add some extra weight to your mid-section without giving your physician heart burn.

 S&P Total Returns, Annualized - Period ending January 31, 2018

S&P Total Returns, Annualized - Period ending January 31, 2018

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