Latest / Stock Picking with Fexingo: Individual Equities, Research, and Building a Concentrated Portfolio / How Mid-Caps Are Quietly Winning in June 2026
Transcript
- Lucas: So it is June 16, 2026, and if you've been watching the Russell 2000 this week, you've seen small caps rip 2.7 percent in five days. The S&P 500 is basically flat. But the quiet winner that no one's talking about? Mid-caps. Luna: And by mid-caps you mean the S&P 400 index, roughly companies between two and ten billion in market cap? Lucas: Exactly. The iShares S&P Mid-Cap 400 ETF, ticker I-J-H, is up about 1.8 percent over the same stretch. Not as flashy as small caps, but here's the thing — mid-caps have been steadily grinding higher all spring while everyone was obsessed with the SpaceX IPO and the AI selloff in mega-caps. Luna: Right. The narrative has been 'big tech is getting crushed' and 'small caps are finally catching up.' Mid-caps kind of sit in the middle and get ignored. Lucas: And that's exactly why I think they're interesting right now. I want to make the case that mid-caps — specifically the S&P 400 — are in a structural sweet spot that could last another year or two, regardless of what the Fed does next. Luna: Okay, walk me through it. Why would mid-caps outperform large caps and small caps simultaneously? Lucas: Start with the large-cap side. The S&P 500 is still heavily weighted toward the mega-cap tech names — Apple, Microsoft, NVIDIA, Alphabet, Amazon, Meta. Those six alone account for something like 28 percent of the index. And as we've discussed in past episodes, a lot of those stocks have gotten compressed on valuation because the AI enthusiasm cooled off. Luna: So the large-cap index is being dragged down by its biggest members. Whereas mid-caps have less exposure to that mega-cap tech gravity. Lucas: Right. The S&P 400's largest sector weights are industrials, financials, and healthcare. Technology is there, but it's more diversified — names like Cadence Design Systems or Synopsys, not the trillion-dollar monsters. So you don't get that single-sector drag. Luna: And on the small-cap side? The Russell 2000 is up 2.7 percent this week, but it's still negative year-to-date I think. Lucas: Exactly. Small caps have been volatile. They rallied hard in April on rate-cut hopes, then sold off in May when the Fed pushed back. Mid-caps have been much more stable. The reason is that mid-cap companies tend to have better balance sheets, more predictable earnings, and more analyst coverage than small caps — but not so much that they're efficiently priced like large caps. Luna: So there's an information advantage for active stock pickers in mid-caps. You can find mispriced names because the big banks' analysts are mostly covering the mega-caps. Lucas: Exactly. There's a famous stat from a few years ago — roughly 40 percent of analyst coverage is on the top 100 stocks by market cap. The remaining 3,000-plus stocks fight over the rest. Mid-caps are in that sweet spot where they're big enough to be institutional-quality but not so big that everyone already knows everything about them. Luna: That's a classic argument for active management in the mid-cap space. But what about the macro environment? Does the current cycle favor mid-caps specifically? Lucas: It does. Look at where we are in June 2026. The economy is growing at a moderate pace — GDP around 2 percent, inflation ticking down but still above the Fed's target. The yield curve is still inverted, but less steeply than a year ago. That's historically been a sweet spot for mid-caps. They're domestically oriented, so they benefit from U.S. growth, but they're not as rate-sensitive as small caps, which often carry more floating-rate debt. Luna: So mid-caps have the growth exposure of large caps but with less interest rate risk than small caps. That's a nice combination. Lucas: And they're cheaper on a valuation basis than large caps. The S&P 400's forward price to earnings ratio is around 16.5, compared to the S&P 500 at about 21. You're getting similar earnings growth — mid-cap earnings grew about 11 percent year-over-year last quarter versus 12 percent for the S&P 500 — but you're paying a 20 percent discount for it. Luna: That sounds compelling. But if mid-caps are so great, why isn't everyone piling in? Why the relative quiet? Lucas: Because the narrative is dominated by two stories: the SpaceX IPO and the big tech selloff. Both are loud, exciting, and easy to talk about. Mid-caps are steady and boring. But that's precisely the opportunity. When a part of the market is overlooked, that's often where the best risk-adjusted returns sit. Luna: It reminds me of something I read about the I-J-H ETF — it has something like 400 holdings, so it's well-diversified, but the top ten are only about 12 percent of the fund. You don't get that single-stock concentration risk you have in the S&P 500. Lucas: Right. And you can be more selective. If you're a concentrated stock picker like we talk about on this show, mid-caps are a fertile hunting ground. You can find companies with strong competitive moats that are still flying under the radar. Luna: Give me a concrete example. What's a mid-cap you're watching right now? Lucas: One I like is a company called Carlisle Companies, ticker c s l. It's a diversified industrial manufacturer — makes roofing materials, brake products, foodservice packaging. Market cap around nine billion. They've been consistently growing earnings at 10 to 12 percent annually, they have a nice dividend, and they're benefiting from the construction cycle and infrastructure spending. But because it's not a household name, it gets less attention. Luna: And that's the kind of thing that a mid-cap-focused active manager can find. Whereas if you try to beat the market in large caps, you're competing against hundreds of analysts and algorithms. Lucas: Exactly. Now, I'm not saying go all-in on mid-caps. But I think it's worth a look for anyone who's tired of the mega-cap roller coaster. And with the Russell 2000 having a good week, maybe the rotation into smaller companies is real. If so, mid-caps might be the next leg. Luna: Hmm. That's a good point. And you know, on the topic of overlooked spaces that deserve more attention — I want to mention something briefly. Our podcast network, Fexingo Business, is entirely listener-supported. We don't run ads, we don't have sponsors. And that's only possible because of people who chip in a couple of dollars a month at buy me a coffee dot com slash fexingo. Lucas: Yeah, it's genuinely a small amount that makes a big difference. If these conversations have helped you think about a stock pick or a portfolio decision, that's the reason we do it. And the support keeps it going. Luna: Alright. Back to mid-caps. You mentioned Carlisle. What's another name you'd put on the watchlist? Lucas: Another one is Pool Corporation, ticker p o o l. They're the largest wholesale distributor of swimming pool supplies in the world. Market cap around 15 billion. It sounds niche, but it's a steady grower — people maintain their pools regardless of the economy. They've got a great return on invested capital, and they've been gaining market share. It's a classic mid-cap compounder. Luna: So the thesis is: find durable businesses in less-glamorous industries, buy them when they're not in the news, and hold for years. Lucas: Exactly. And the great thing about mid-caps is that they can become large caps. A company like Pool Corporation has doubled its revenue over the last five years. If you find those before they graduate, the returns can be substantial. Luna: One risk I see, though — if we do get a recession, mid-caps might get hit harder than large caps because they have less pricing power and more cyclical exposure. Lucas: That's a fair point. Mid-caps are more cyclical than mega-caps. But the current macro environment doesn't point to an imminent recession — jobless claims are low, consumer spending is holding up. And mid-caps have actually been building stronger balance sheets. debt to equity ratios for the S&P 400 are near historic lows. Luna: So they're entering any potential downturn in better shape than in previous cycles. That's a good note to end on. Thanks, Lucas. Lucas: Thanks, Luna. Next time we'll dig into one of those mid-cap compounders in more detail. Stay curious.