The Mid Cap Sweet Spot: Finding Growth Beyond America’s Largest Companies

July 31, 2026

By Andy Romanowich, CFA, Portfolio Manager, Analyst, Madison Asset Management, LLC

Over the past three years, the US equity market has been a source of significant wealth accumulation for Canadian investors. It is also well documented that the US equity market has become increasingly concentrated by mega-caps, with returns dominated by a single theme: AI momentum. Within the cap-weighted S&P 500 Index, 16 of the top 20 contributors to year-to-date returns hail from the AI theme, which accounts for 28% of the index’s weighting and for all of the index’s 2026 return, as of 6/30. For Canadian investors who rely on passive index ETFs to gain US equity exposure, owning the market increasingly means making an implicit bet on a relatively small group of companies. Yet, 93% of all Canadian-listed US equity ETF assets reside in these index funds². That concentration has also drawn attention away from another compelling segment of the US market: mid caps.

Opportunity in the Middle Ground

Large caps tend to be mature companies with proven businesses, slower growth, and the law of large numbers working against them. Small caps offer exciting growth potential, but with greater uncertainty and much shorter operational track records. Mid caps, defined as companies between US$500 million and US$70 billion in market capitalization, occupy a unique stage in the middle of the business lifecycle. Many have established, durable business models, experienced management teams, and proven profitability, yet still have significant opportunities to expand into new markets, launch new products, and compound earnings over time. Mid caps can experience more share-price volatility and may have less scale and resources than larger companies. Still, they offer a combination of stability and growth potential that can be difficult to find elsewhere in the market. After all, today’s large caps were at one point considered mid cap.

We find that this part of the market is also a fertile ground for exploiting market inefficiencies and finding relative value. Large cap companies are widely followed and earn constant media attention, while by contrast, mid caps tend to have fewer analysts covering them and receive less attention from investors. This can create pricing inefficiencies that active managers may be able to exploit through fundamental research. Success in this segment often depends less on identifying the next market theme and more on understanding individual businesses.

The Mid Cap Opportunity

Investing Like a Business Owner

The Madison US Mid Cap ETF (Ticker: MMID) gives investors access to the mid cap sweet spot in the US equity market in a concentrated portfolio of 25-40 high-quality, growth stocks. Risk management is central to the ETF’s investment approach and deeply embedded throughout an extensive, bottom-up research process.

The process begins with a simple question: “Would we want to own this entire business?” To earn a place in the portfolio, a company must pass a rigorous three-step process that considers (1) the business model, (2) the management team, and (3) valuation.

1. Business model analysis – How durable is the business?

The strategy begins by evaluating whether a company possesses a strong “moat”, or durable competitive advantage, that can sustain profitability through changing economic environments. Businesses with strong brands, network effect economics, and low-cost positions are often better equipped to withstand competitive pressures, making this an important first step in managing long-term investment risk.

2. Management team assessment – Do they create value for shareholders?

Management teams are evaluated based on their capital allocation decisions, strategic discipline, and alignment with shareholders. Leaders who consistently reinvest capital wisely and think beyond the next quarter can have an outsized impact on long-term shareholder value.

3. Valuation – What is the business worth?

Even outstanding businesses can become poor investments if purchased at unreasonable prices. The strategy focuses on long-term future cash flows to estimate the intrinsic value of every company that passes the first two tests and seeks to invest only when there is an attractive margin between the market’s price and this assessment. Valuation discipline not only supports return potential but also helps provide a margin of safety when market expectations change.

For investors whose US equity exposure is primarily concentrated in large cap index strategies, the Madison US Mid Cap ETF offers access to a different part of the market—one where active fundamental research, including disciplined valuation work, can uncover overlooked, proven businesses with long-term growth opportunities.

Important disclosures:

Sources: 1. FactSet as of 6/30/26, 2. Morningstar as of 7/31/26

ETFs are sub-advised by Madison Asset Management, LLC.

Certain statements in this document may contain forward-looking statements (“FLS”) that are predictive nature and may include words such as “expects”, “anticipates”, “intends”, “believes”, “estimates” and sim forward-looking expressions or negative versions thereof. FLS are based on current expectations and projections about future general economic, political and relevant market factors, such as interest and foreign exchange rates, equity and capital markets, the general business environment, assuming no changes to tax or other laws or government regulation or catastrophic events. Expectations and projections about future events are inherently subject to risks and uncertainties, which may be unforeseeable. Such expectations and projections may be incorrect in the future. FLS are not guarantees of future performance. Actual events could differ materially from those expressed or implied in any FLS. A number of important factors including those factors set out above can contribute to these digressions. You should avoid placing any reliance on FLS.

Index returns are shown for comparative purposes only. Indexes are unmanaged and their returns include reinvestment of dividends, if applicable, but do not include any sales charges or fees as such costs would lower performance. It is not possible to invest directly in an index.

S&P 500 Index: large cap market index that measures the performance of a representative sample of 500 leading companies in leading industries in the US.