Sagar Thanki, Co-Portfolio Manager of the Guinness Global Quality Mid Cap, comments on the opportunities in the global mid-cap market.
The prevailing narrative that large caps have outperformed over the past couple of decades requires closer scrutiny. What markets have actually witnessed is not a large-cap story but a mega-cap one, which has driven by a handful of names at the very top of the index and amplified by passive flows and momentum.
The equal-weighted S&P 500 tracked mid-caps almost identically over 2023–25, yet the barbell mentality — large for stability, small for growth — continues to lead investors to overlook the segment that has delivered the best long-run returns. Twenty-five years of data highlights that US mid-caps compounded at 9.8% annually versus 8.3% for large caps, with better risk-adjusted returns throughout.
The concentration risk embedded in mainstream portfolios is starker than most investors appreciate. The ten largest names now account for 39% of the MSCI USA 500, with seven carrying direct or indirect AI exposure. Microsoft alone sits in 70% of the fifty largest global equity funds, 53% of global equity income funds and 66% of global ESG funds, meaning investors are trebling up on the same exposures across strategies that are supposed to be distinct.
The UK presents its own instructive case. The FTSE 250, for decades the standout long-run performer in the domestic market, has lagged not only the FTSE 100 but small caps too over recent years. A function of its domestic skew colliding with post-2016 sterling weakness and persistent outflows from UK equity funds. It is a reminder that index construction and fund flows can overwhelm fundamentals for surprisingly extended periods, without altering the underlying quality of the businesses concerned.
What drove the gap between mid-caps and their larger counterparts was not a fundamental shift in the relative merits of these businesses, but a flow-driven, momentum-amplified concentration trade, one reinforced mechanically by the continued growth of passive investing and turbocharged by AI capital expenditure accruing to a very small number of names at the top of the major indices.
The opportunity is arguably most pronounced in the United States, where the mid-cap universe contains the deepest concentration of genuinely high-quality businesses and established market leaders with persistently strong returns on capital and long runways for growth. This segment stands to be amongst the most direct beneficiaries of fiscal stimulus, reshoring activity, and the broadening of the AI buildout beyond chip designers into adjacent areas such as power infrastructure, testing, advanced packaging and data centre construction.
The AI investment cycle has a much longer tail than the narrow group of names that has so far captured the market’s attention.
Fund Commentary
Against that backdrop, the Guinness Global Quality Mid Cap Fund returned 26.4% year-to-date, against 9.9% for the MSCI World Mid Cap Index[1]. Mid cap companies occupy a unique position in the investment landscape, combining the resilience of established businesses with the dynamism of growth-oriented firms. These companies are often under-researched and underutilised by investors, especially today with the overconcentration of indices and funds in a narrow set of mega-cap businesses.
Three key examples of how mid cap alternatives can offer more focused exposure to high-growth areas of the market are examined in this month’s commentary:
- BE semiconductor industries can offer investors semiconductor exposure with its dominant position within advanced packaging, which is an increasingly in-demand function as AI accelerators, high-bandwidth memory and copackaged optics all require increasingly sophisticated packaging.
- Monolithic Power Systems offers a more focused play on power management for AI servers, with its power management chips sitting alongside the cutting-edge processors driving the AI build-out, regulating the power those chips draw. As each new generation of AI chip becomes more power-hungry, the value of MPS’s content rises with it, giving the company direct leverage to the AI infrastructure theme.
- Edwards Lifesciences is a leader in transcatheter aortic valve replacements (TAVR), treats severe aortic stenosis that is common in the elderly and, if untreated, often fatal. Rather than open-heart surgery, TAVRs are inserted in a far less invasive procedure, resulting in shorter hospital stays and faster recovery. Edwards Lifesciences offers concentrated, focused exposure to one of the most attractive areas in medtech, with a singular focus and proven track record of innovation.
[1] Performance data as of 31/05/2026
