I stumbled across this article at Morningstar about large cap stocks. Apparently Morningstar defines large cap as anything above $8.5 billion. This explains a couple of things. I have my personal portfolio plugged in to the subscription based portfolio manager, which is a great tool by the way. It says my average cap size $31 billion. The interpretation of the X-ray pages tells me I am too concentrated in large caps which makes no sense as the average cap size of the S+P 500 is about $90 billion or so.
I took a quick peak at the cap size of the largest components of five different mid cap ETFs, including the three that Morningstar has, because the $8.5 billion makes no sense to me.
iShares Russell Mid Cap Index (IWR) has nine of its top ten bigger than the $8.5 billion number. The iShares S+P Mid Cap Index (IJH) has five of its top ten larger than $8.5 billion. The iShares Morningstar Mid Cap Core (JKG) has nine of its top ten larger than its own $8.5 billion threshold. The iShares Morningstar Mid Cap Growth (JKH) has nine of its top ten larger than $8.5 billion. Lastly the iShares Morningstar Mid Cap Value (JKI) has all ten of its top ten larger than the figure.
"Uh Mr. left hand, Mr. right hand calling for you again on line two."
The information on the site is great. The analysis continually underwhelms me. The make up of its own mid cap ETFs contradicts the analysts work. I think this could leave people with an incorrect impression of their portfolio composition, in the tools section, and perhaps cause people to take action based on what looks to me like flawed information.
Where there is one there must be others. If you have some web site or brokerage firm offering commentary on your portfolio make sure you double check the work the lead to the conclusion.
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1 comments:
It strikes me as rather odd to define mid-cap by a numerical value - unless one is prepared to continually revise that value. In a strong bull run, more and more stocks will cross any fixed numerical threshold into large-cap(and I suspect that is what has happened recently, perhaps explaining the discrepancy you have found); equally, in a bear market, more and more large-caps will cross the threshold the otehr way, dropping into mid-cap - UNLESS the threshold is constantly revised. One alternative approach (used by FTSE for the UK): the FTSE 100 comprises (approximately) the largest 100 companies in the market: by definition, the large-caps, whatever their individual market-cap. The next 250 make up the FTSE 250 index - the mid-caps. Anything outisde these 350 companies is small-cap. There are rules allowing a company to move between these three groupings, based on their ranking in a quarterly review. However, while the numbers of companies in each group might be arbitrary (100/250/the rest), this system means that there is no need for an arbitrary market-cap boundary - which of course can become obsolete very quickly. For what it's worth, I believe DowJones uses a similar approach for the EuroStoxx indices.
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