Starting out
Small-cap, mid-cap and large-cap
Rough size bands used to group companies by market capitalisation.
How it works
The boundaries are conventions rather than rules, and they differ by market. In the US, large-cap is loosely above $10bn, mid-cap between roughly $2bn and $10bn, and small-cap below that, with micro-cap beneath again.
The bands behave differently enough to be treated as separate asset classes. Smaller companies are more volatile, less liquid, followed by fewer analysts, and more likely to fail — and have historically compensated for that with higher average returns over very long periods.
Where it misleads people
Small-cap indices are rebuilt as companies grow out of them, so the winners are removed once they succeed. That is a real feature of the index rather than a flaw, and it makes long-run small-cap return figures harder to interpret than they look.
Related terms
- Market capitalisationWhat the market says a whole company is worth: the share price multiplied by the number of shares.
- LiquidityHow quickly you can turn something into cash at a fair price, without moving the price against yourself.
- Factor investingBuilding portfolios around characteristics that have historically explained returns.
- IndexA rules-based list of securities used to represent a market or segment of one.
- Free floatThe portion of a company’s shares that is actually available to trade in the market.
More in Starting out
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.