Why is Mid-Cap Fund underperforming?

[Spindrift]

YTD the Mid-Cap Fund is up only .4% vs. the S&P 500 Index being up 3.5%, and the Extended Market fund up 2.7%. I have never seen this type of variance in the Mid-Cap fund from the other broader market indexes. I understand that the Small Cap Value sector is weighing down the Extended Market but I have no idea what is depressing the Mid-Cap fund. Anyone have any insight into why this decoupling has occurred?

[aristotelian]

My first guess would be exposure to financial sector during the SVB crisis.

[OldSport]

Has all the recent routine index investing caused S&P 500 inflated returns vs. historical compared to mid & small caps when viewed on traditional fundamental/valuation metrics.

[JoMoney]

Looking at a couple month period is silly.
If you expected a mid-cap fund would some how be "coupled" to, with very little "variance from the other broader market indexes", why would you buy it? A broader market index fund is available at lower cost, lower risk, and an explicit objective of tracking a broader market index.

[cheezit]

YTD the Mid-Cap Fund is up only .4% vs. the S&P 500 Index being up 3.5%, and the Extended Market fund up 2.7%. I have never seen this type of variance in the Mid-Cap fund from the other broader market indexes. I understand that the Small Cap Value sector is weighing down the Extended Market but I have no idea what is depressing the Mid-Cap fund. Anyone have any insight into why this decoupling has occurred?

Which mid-cap fund?

Nb. the CRSP definition of mid-cap doesn't align well with the S&P definition, so eg. VFINX/VOO will have about a hundred stocks in common with VIMSX due to the fact that the indices draw the lines between large-cap and mid-cap in different places.


Looking at the S&P large/mid/small indices from the beginning of the year through the end of February, mid-cap did the best:


If it's now trailing YTD, it must have had a really lousy first half of March. Fluctuations of this sort happen all the time over extremely short time periods like this.

[jebmke]

YTD the Mid-Cap Fund is up only .4% vs. the S&P 500 Index being up 3.5%, and the Extended Market fund up 2.7%. I have never seen this type of variance in the Mid-Cap fund from the other broader market indexes. I understand that the Small Cap Value sector is weighing down the Extended Market but I have no idea what is depressing the Mid-Cap fund. Anyone have any insight into why this decoupling has occurred?

Maybe the S&P 500 is overperforming relative to the rest.

The fact is that tracking error should be expected when looking at sections of the total index. SCV was significantly "underperforming" in the 1990s for quite a while - it was not pretty, I can tell you from personal experience having been heavily weighted to SCV. Tilting is a long game that doesn't always work out.

[OldSport]

YTD the Mid-Cap Fund is up only .4% vs. the S&P 500 Index being up 3.5%, and the Extended Market fund up 2.7%. I have never seen this type of variance in the Mid-Cap fund from the other broader market indexes. I understand that the Small Cap Value sector is weighing down the Extended Market but I have no idea what is depressing the Mid-Cap fund. Anyone have any insight into why this decoupling has occurred?

Maybe the S&P 500 is overperforming relative to the rest.

The fact is that tracking error should be expected when looking at sections of the total index. SCV was significantly "underperforming" in the 1990s for quite a while - it was not pretty, I can tell you from personal experience having been heavily weighted to SCV. Tilting is a long game that doesn't always work out.

It has been like this since late 2016 & early 2017. Outside of a few temporary periods, S&P 500 has outperformed everything. Small cap value was touted by folks like Paul Merriman as beating S&P 500, and I'm just not seeing it. Both SCV and MCV have significantly underperformed S&P 500 - again.

[burritoLover]

YTD the Mid-Cap Fund is up only .4% vs. the S&P 500 Index being up 3.5%, and the Extended Market fund up 2.7%. I have never seen this type of variance in the Mid-Cap fund from the other broader market indexes. I understand that the Small Cap Value sector is weighing down the Extended Market but I have no idea what is depressing the Mid-Cap fund. Anyone have any insight into why this decoupling has occurred?

Maybe the S&P 500 is overperforming relative to the rest.

The fact is that tracking error should be expected when looking at sections of the total index. SCV was significantly "underperforming" in the 1990s for quite a while - it was not pretty, I can tell you from personal experience having been heavily weighted to SCV. Tilting is a long game that doesn't always work out.

It has been like this since late 2016 & early 2017. Outside of a few temporary periods, S&P 500 has outperformed everything. Small cap value was touted by folks like Paul Merriman as beating S&P 500, and I'm just not seeing it. Both SCV and MCV have significantly underperformed S&P 500 - again.

Well, except for the entire history of the stock market.

[watchnerd]

Behavioral questions like this are why I no longer do tilts.

[arcticpineapplecorp.]

YTD the Mid-Cap Fund is up only .4% vs. the S&P 500 Index being up 3.5%, and the Extended Market fund up 2.7%. I have never seen this type of variance in the Mid-Cap fund from the other broader market indexes.

huh?

seems like there's always been variance between mid cap and the "other broader market indexes":



source:
https://www.portfoliovisualizer.com/bac ... ion3_3=100



you can also see the variance monthly if you wish (click on "monthly returns" under the portfolio analysis results at the link above).

[whodidntante]

Perhaps because it is unloved?

[Northern Flicker]

YTD the Mid-Cap Fund is up only .4% vs. the S&P 500 Index being up 3.5%, and the Extended Market fund up 2.7%. I have never seen this type of variance in the Mid-Cap fund from the other broader market indexes. I understand that the Small Cap Value sector is weighing down the Extended Market but I have no idea what is depressing the Mid-Cap fund. Anyone have any insight into why this decoupling has occurred?

Look at the financial sector weight of the fund. Midcap banks got hammered.

[Spindrift]

YTD the Mid-Cap Fund is up only .4% vs. the S&P 500 Index being up 3.5%, and the Extended Market fund up 2.7%. I have never seen this type of variance in the Mid-Cap fund from the other broader market indexes.

huh?

seems like there's always been variance between mid cap and the "other broader market indexes":



source:
https://www.portfoliovisualizer.com/bac ... ion3_3=100



you can also see the variance monthly if you wish (click on "monthly returns" under the portfolio analysis results at the link above).

arcticpineapplecorp, thank you for posting this data. Very helpful. I obviously know that these indexes are different but I do not remember seeing such a wide variance in returns. Admittedly I had been focused on recent memory over the last few years. I apparently had forgot about 2018 and 2011. Just got used to these tracking within ~100-200bps. Currently these are quite divergent with the 500 +2.4% and MidCap -1.4%. Not sure of the actual weighting, but as mentioned perhaps the current banking debacle is a primary driver of this. Thanks again!

[02nz]

I have never seen this type of variance in the Mid-Cap fund from the other broader market indexes.

What you describe is hardly much "variance" beween mid-cap and the total stock market, but if that's what's bothering you, why in the world are you invested in a mid-cap fund rather than total stock market?

[Spindrift]

I have never seen this type of variance in the Mid-Cap fund from the other broader market indexes.

What you describe is hardly much "variance" beween mid-cap and the total stock market, but if that's what's bothering you, why in the world are you invested in a mid-cap fund rather than total stock market?

My comment above is self explanatory. Nothing is bothering me, it was just an observation which was a bit myopic after looking at the actual data. I have owned this fund for decades as a part of my portfolio. [Unnecessary comment removed by admin LadyGeek]

[dcabler]

I have never seen this type of variance in the Mid-Cap fund from the other broader market indexes.

What you describe is hardly much "variance" beween mid-cap and the total stock market, but if that's what's bothering you, why in the world are you invested in a mid-cap fund rather than total stock market?

My comment above is self explanatory. Nothing is bothering me, it was just an observation which was a bit myopic after looking at the actual data. I have owned this fund for decades as a part of my portfolio. [Unnecessary comment removed by admin LadyGeek]

Nobody was complaining when midcaps (for me specifically S&P 400 midcaps via IJH) were above the market YTD. That only changed about a week or so ago. This is nothing but noise.

Cheers

[smooth_rough]

Blend mid cap with large cap. Russell 1000 index.

[arcticpineapplecorp.]

I have never seen this type of variance in the Mid-Cap fund from the other broader market indexes.

What you describe is hardly much "variance" beween mid-cap and the total stock market, but if that's what's bothering you, why in the world are you invested in a mid-cap fund rather than total stock market?

could this be why:



source:
https://www.portfoliovisualizer.com/bac ... ion2_2=100

[the_wiki]

Honestly worrying about YTD returns in mid March is very short sighted.

I have never seen this type of variance in the Mid-Cap fund from the other broader market indexes.

You have just not been paying attention. Look at some historical returns, it a rare year where Large/Mid/Small returns the same. And if you were expecting the same returns as VTI, just buy VTI!

https://www.portfoliovisualizer.com/bac ... ion3_3=100

The reason most people break out from VTI and buy different buckets in different size factors is specifically because they expect different returns and want the diversification.

[02nz]

I have never seen this type of variance in the Mid-Cap fund from the other broader market indexes.

What you describe is hardly much "variance" beween mid-cap and the total stock market, but if that's what's bothering you, why in the world are you invested in a mid-cap fund rather than total stock market?

could this be why:



source:
https://www.portfoliovisualizer.com/bac ... ion2_2=100

Of course that's why! But if OP wants the potential upside, then they also need to be prepared for the potential downside, esp. when we are talking about a time period of a couple of months. Otherwise, just do total stock market.

[dcabler]

I have never seen this type of variance in the Mid-Cap fund from the other broader market indexes.

What you describe is hardly much "variance" beween mid-cap and the total stock market, but if that's what's bothering you, why in the world are you invested in a mid-cap fund rather than total stock market?

could this be why:



source:
https://www.portfoliovisualizer.com/bac ... ion2_2=100

Of course that's why! But if OP wants the potential upside, then they also need to be prepared for the potential downside, esp. when we are talking about a time period of a couple of months. Otherwise, just do total stock market.

The same can be argued in reverse with total stock market relative to midcaps...

[yolointopants]

Behavioral questions like this are why I no longer do tilts.

The only tracking error most people can stomach is to the upside. Better to recognize it and correct then to panic.

[AlohaBill]

Where’s Mel?
Better ask him.

[Mel Lindauer]

Where’s Mel?
Better ask him.

For many years, as many of the Bogleheads know, I was 100% mid-caps for the equity portion of my portfolio. I wrote and posted about them so much that they became known as "Mel's Unloved Mid-Caps".

However, despite the fact that Mid-Caps had been very good to me, once I had attained "more than enough", I reduced the equity portion of my portfolio and opted to move the reduced equity portion to Vanguard's Index 500 fund, which is now my sole equity holding.

Do you think that perhaps the reason they're down now is that I haven't been writing about them lately?

[zero_coupon]

However, despite the fact that Mid-Caps had been very good to me, once I had attained "more than enough", I reduced the equity portion of my portfolio and opted to move the reduced equity portion to Vanguard's Index 500 fund, which is now my sole equity holding.

So much for "stay the course," ha ha.

[dcabler]

Where’s Mel?
Better ask him.

For many years, as many of the Bogleheads know, I was 100% mid-caps for the equity portion of my portfolio. I wrote and posted about them so much that they became known as "Mel's Unloved Mid-Caps".

However, despite the fact that Mid-Caps had been very good to me, once I had attained "more than enough", I reduced the equity portion of my portfolio and opted to move the reduced equity portion to Vanguard's Index 500 fund, which is now my sole equity holding.

Do you think that perhaps the reason they're down now is that I haven't been writing about them lately?

Mel - I backed into midcaps on my own but was overjoyed when I found your unloved midcaps thread later here on the forum. I remain 100% midcaps, both US and international. I have more than enough and am retiring shortly. As for me, I see no reason at all to move away from midcaps as you did and plan on sticking to it all the way through...

Cheers (and thank you!)

[beezlebub]

Behavioral questions like this are why I no longer do tilts.

+1

At one point I was ready to equal weight between large, mid, and small caps based on backtesting. Another time I was ready to go all in on Value. Another time it was Growth. I am glad I never acted on any of these impulses caused by short term market changes and stuck with a total market approach. There are too many of these performance chasing threads on Bogleheads when times are good for any one flavor of the month, followed by "Why is ___Underperforming" threads 6-12 months later when the strategy fails.

[dcabler]

Behavioral questions like this are why I no longer do tilts.

The only tracking error most people can stomach is to the upside. Better to recognize it and correct then to panic.

Regarding "tracking error" - this is exactly why I don't track anything in my portfolio relative to anything else. Besides, I find it arbitrary as to what I would even track against. My portfolio is either doing what I need to do or it isn't. I don't care if something else is "better" (something always will be) and I don't care if what I'm doing is "better" (I can always find something worse).

Cheers

[02nz]

I have never seen this type of variance in the Mid-Cap fund from the other broader market indexes.

What you describe is hardly much "variance" beween mid-cap and the total stock market, but if that's what's bothering you, why in the world are you invested in a mid-cap fund rather than total stock market?

could this be why:



source:
https://www.portfoliovisualizer.com/bac ... ion2_2=100

Of course that's why! But if OP wants the potential upside, then they also need to be prepared for the potential downside, esp. when we are talking about a time period of a couple of months. Otherwise, just do total stock market.

The same can be argued in reverse with total stock market relative to midcaps...

No, the default or starting point should be total stock market. Deviating from it means you need to expect your returns can deviate as well - up or down. Nobody would start out from midcaps only and "tilt" toward total stock market.

[02nz]

BTW YTD Vanguard's mid-cap index fund (VIMAX) is up 5.04%, a bit better than VTSAX at 4.4%. OP likely invested in an active fund that underperformed.

[dcabler]

What you describe is hardly much "variance" beween mid-cap and the total stock market, but if that's what's bothering you, why in the world are you invested in a mid-cap fund rather than total stock market?

could this be why:



source:
https://www.portfoliovisualizer.com/bac ... ion2_2=100

Of course that's why! But if OP wants the potential upside, then they also need to be prepared for the potential downside, esp. when we are talking about a time period of a couple of months. Otherwise, just do total stock market.

The same can be argued in reverse with total stock market relative to midcaps...

No, the default or starting point should be total stock market. Deviating from it means you need to expect your returns can deviate as well - up or down. Nobody would start out from midcaps only and "tilt" toward total stock market.

I believe that this choice of a default is a philosophical one and is a common one here on the forum. To me, factors make sense and beta is but one factor, but it's not the only one. By the way, when one does start out with midcaps only, one actually is tilting strongly towards the total stock market if you look at most funds factor regressions (backwards looking only, of course)...

Cheers.

[Mel Lindauer]

However, despite the fact that Mid-Caps had been very good to me, once I had attained "more than enough", I reduced the equity portion of my portfolio and opted to move the reduced equity portion to Vanguard's Index 500 fund, which is now my sole equity holding.

So much for "stay the course," ha ha.

When you finally reach shore after rowing in turbulent waters, do you continue to row or do you start walking?

[Spindrift]

BTW YTD Vanguard's mid-cap index fund (VIMAX) is up 5.04%, a bit better than VTSAX at 4.4%. OP likely invested in an active fund that underperformed.

No, the OP is invested in the VIMAX and it is down -1.39% YTD and the S&P 500 +2.4%. The 5.04% listed is through 2/28/23.

[zero_coupon]

However, despite the fact that Mid-Caps had been very good to me, once I had attained "more than enough", I reduced the equity portion of my portfolio and opted to move the reduced equity portion to Vanguard's Index 500 fund, which is now my sole equity holding.

So much for "stay the course," ha ha.

When you finally reach shore after rowing in turbulent waters, do you continue to row or do you start walking?

Indeed...just giving you a hard time (hoped to convey this via "ha ha," but fell flat). Best regards.

[Mel Lindauer]

However, despite the fact that Mid-Caps had been very good to me, once I had attained "more than enough", I reduced the equity portion of my portfolio and opted to move the reduced equity portion to Vanguard's Index 500 fund, which is now my sole equity holding.

So much for "stay the course," ha ha.

When you finally reach shore after rowing in turbulent waters, do you continue to row or do you start walking?

Indeed...just giving you a hard time (hoped to convey this via "ha ha," but fell flat). Best regards.

No problem, but thanks for clarifying your intentions anyway. (I'm walking now since I reached the shore some time ago.)

[Miriam2]

However, despite the fact that Mid-Caps had been very good to me, once I had attained "more than enough", I reduced the equity portion of my portfolio and opted to move the reduced equity portion to Vanguard's Index 500 fund, which is now my sole equity holding.

So much for "stay the course," ha ha.

When you finally reach shore after rowing in turbulent waters, do you continue to row or do you start walking?

Indeed...just giving you a hard time (hoped to convey this via "ha ha," but fell flat). Best regards.

No problem, but thanks for clarifying your intentions anyway. (I'm walking now since I reached the shore some time ago.)

I appreciate these posts by zero_coupon and Mel - many of us find it difficult to "change our course" when we should because we don't want to violate a sound "stay the course" principle

[whodidntante]

However, despite the fact that Mid-Caps had been very good to me, once I had attained "more than enough", I reduced the equity portion of my portfolio and opted to move the reduced equity portion to Vanguard's Index 500 fund, which is now my sole equity holding.

So much for "stay the course," ha ha.

A vessel that never changes course is called a shipwreck.

[OldSport]

Where’s Mel?
Better ask him.

For many years, as many of the Bogleheads know, I was 100% mid-caps for the equity portion of my portfolio. I wrote and posted about them so much that they became known as "Mel's Unloved Mid-Caps".

However, despite the fact that Mid-Caps had been very good to me, once I had attained "more than enough", I reduced the equity portion of my portfolio and opted to move the reduced equity portion to Vanguard's Index 500 fund, which is now my sole equity holding.

Do you think that perhaps the reason they're down now is that I haven't been writing about them lately?

Mel - I backed into midcaps on my own but was overjoyed when I found your unloved midcaps thread later here on the forum. I remain 100% midcaps, both US and international. I have more than enough and am retiring shortly. As for me, I see no reason at all to move away from midcaps as you did and plan on sticking to it all the way through...

Cheers (and thank you!)

Which midcap funds and ETFs do you have? I have a slight domestic midcap & midcap value tilt, but haven't identified a good midcap international.

[whodidntante]

The mega caps tend to trip themselves over their extremely large feet. So I think just avoiding those would improve a portfolio. However, owning mid caps with a quality filter would do that just fine, since an S&P 500 fund minus clown shoe companies seems elusive. There seems to be a bit of a small cap boost as well, also with a quality filter. Extended market funds and the Russell 2000 seem to be an eternal dumpster fire.

[dcabler]

Where’s Mel?
Better ask him.

For many years, as many of the Bogleheads know, I was 100% mid-caps for the equity portion of my portfolio. I wrote and posted about them so much that they became known as "Mel's Unloved Mid-Caps".

However, despite the fact that Mid-Caps had been very good to me, once I had attained "more than enough", I reduced the equity portion of my portfolio and opted to move the reduced equity portion to Vanguard's Index 500 fund, which is now my sole equity holding.

Do you think that perhaps the reason they're down now is that I haven't been writing about them lately?

Mel - I backed into midcaps on my own but was overjoyed when I found your unloved midcaps thread later here on the forum. I remain 100% midcaps, both US and international. I have more than enough and am retiring shortly. As for me, I see no reason at all to move away from midcaps as you did and plan on sticking to it all the way through...

Cheers (and thank you!)

Which midcap funds and ETFs do you have? I have a slight domestic midcap & midcap value tilt, but haven't identified a good midcap international.

IJH is my US Midcap holding. Historically it has had a slight value tilt, but not because such a tilt is specifically targeted by S&P. I like the construction rules it uses and, compared to other ETFs that track the same index, IJH has historically done a better job.

International is more problematic, but I'm using ISCF for this purpose with an 80% IJH and 20% ISCF ratio. It's a multi-factor fund so it's going to have a little bit of a value tilt at any given time as well. Looking at index returns for all of the mid/small cap choices over the longest time period possible, only the index that ISCF tracks stands out over the long run. Of course, nobody knows the future and among the funds I monitor, ISCF is definitely underperforming so far this year. Such is life. There are, of course, other choices such as some of the newer ETF's that have come along in the last couple of years. But they're not index based and there just isn't enough history for my liking..

IJH is held in my taxable account and HSA
ISCF is held in my IRA

Last year I used SCHM as a TLH partner for IJH.

cheers.

[the_wiki]

The mega caps tend to trip themselves over their extremely large feet. So I think just avoiding those would improve a portfolio. However, owning mid caps with a quality filter would do that just fine, since an S&P 500 fund minus clown shoe companies seems elusive. There seems to be a bit of a small cap boost as well, also with a quality filter. Extended market funds and the Russell 2000 seem to be an eternal dumpster fire.

Vanguard's Mid Cap (VO) is pretty close as it is a "large" mid-cap that holds about 270 of the S&P500 stocks.