Equities Equity Essentials: Ideas and insights in under three minutes

Since late 2025, we’ve seen a rotation away from megacap stocks and a broadening of performance towards other market caps, including mid-caps.¹ Mid-sized companies are often described as the “sweet spot” of investing, combining some of the best features of large and small companies. The mid cap universe spans companies from about $7 billion to $70 billion in market cap, representing a broad opportunity set for identifying high-quality businesses with meaningful growth potential. 

In our view, they have a lot going in their favor.

Earnings can help drive stocks, and mid-cap earnings growth improved in 2025.² And looking ahead, expectations for 2026 are roughly on par with large caps, while mid-caps continue to trade at lower valuations.³

What’s also compelling is that premier mid-cap growth companies have the potential to compound earnings and grow through market capitalizations. We’re excited about how many premier mid-cap companies we’re able to find. Compared to small caps, the opportunity set is more balanced across sectors, and it’s far less concentrated than large caps.⁴

The performance gap between winners and losers has been staggering lately, too, creating an environment where active management may shine.⁵ Our research has helped us find what we consider to be the best relative growth opportunities, and just as importantly, areas to avoid. One example is the tech sector. We built an overweight in semiconductors and hardware stocks, both of which have performed well in our Discovery Mid-Cap Growth Fund.⁶ Conversely, our research led us to avoid software, where we’ve held one of the largest underweights. Software has significantly underperformed the broader market.⁷

Despite heightened volatility, we’re optimistic about our ability to navigate the market and find companies that can potentially outperform across market cycles. Our Discovery Growth Team covers the full lifecycle of growth companies — from small to mid to large caps — giving us a comprehensive view of the competitive landscape, supply chains, and opportunity set.

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