The sweet spot for risk-adjusted returns: Why investors should focus on mid caps

We believe that mid-caps stocks are the most attractive part of the market for absolute returns. Since 2000, the S&P/ASX MidCap 50 has delivered an annualised return of 10.1% - far outstripping the performance of both its large and small-cap counterparts. 

Companies that reside in this segment of the market have several attractive attributes - including but not limited to:  

• Experienced management teams;
• Well-established and profitable business models;
• Sound governance practices; and 
• Deep market liquidity.

Many of these companies were once successful small-cap stocks that Eley Griffiths Group has researched extensively for its small-cap strategy. Rather than bid farewell to these companies as they leave the small-cap universe, our new mid-cap strategy provides investors with an opportunity to gain exposure to our highest conviction small-cap ideas as they grow and transition into mid-cap status and beyond.

It's well known that performance fees have a big part to play in long-term returns. In fact, research published in the Journal of Financial Intermediation found that funds with performance fees have annual net risk-adjusted returns 0.5% lower than other funds.

Given the local mid-cap index has been notoriously difficult to outperform, Eley Griffiths Group is launching a new Mid-Cap Fund with an innovative fee structure. We will not be charging performance fees - and the management fees on this Fund are fixed at just 1.05%. 

In this Fund in Focus, I take you through our reasoning behind launching a mid-cap fund today, some examples of portfolio positions we are holding in the portfolio, as well as why we believe a style agnostic approach and diverse capability set is key to outperformance in this area of the market. 

Find out more about the Eley Griffiths Group Mid-Cap Fund here

Timecodes

• 0:00 - Intro 
• 0:11 - Who is Eley Griffiths Group? 
• 1:10 - The case for active management 
• 1:40 - An introduction to the Eley Griffiths Group Mid Cap Fund 
• 3:22 - Why mid caps? 
• 4:54 - Portfolio examples 
• 5:20 - Our approach to investing in mid caps 
• 7:09 - Extending the small-cap journey 
• 7:58 - Why a style agnostic approach is key 
• 9:12 - A diverse skillset is required - particularly with capabilities in resources 
• 10:07 - Our investment process 
• 10:55 - Summary