While the Australian Securities Exchange (ASX) blue chips have demonstrated their ability to weather the volatile market, some financial experts recommend balancing shares portfolios by investing in the mid-cap sector.

This is because mid-cap stocks offer a certain degree of stability similar to blue chips, but since mid-cap companies often have more room for growth, it can result in potentially higher returns.

Here’s what mid-cap stocks are and how they can help investors achieve a more stable, diversified and growth-oriented portfolio.

How to find mid-cap stocks

Selecting mid-cap businesses to invest in from the thousands of listed companies in the ASX can be difficult, especially since there is a thin line separating mid from small-caps—the main reason some investors get confused.

There are several ways to identify mid-cap companies, and the list could change depending on which definition the investor applies. To simplify things, here are two of the most common ways to identify mid-cap stocks.

Mid-cap market capitalisation 
The ‘cap’ in mid-cap actually refers to a company’s market capitalisation, which should range between that of small and large-cap businesses. However, the range can change depending on the financial manager.

Some estimate the capitalisation to range between $400 million and $1 billion, while others place it between $2 billion and $10 billion. Either way, a mid-cap company’s market capitalisation must fall between the small-cap maximum and large-cap minimum.

To compute for a company’s market capitalisation, simply multiply the share price with its number of outstanding shares.

For example, a listed company with 500 million outstanding shares that is currently trading at $5 has a market capitalisation of $2.5 billion.

The S&P Australian Index Committee (AIC) however, further simplifies the identification process through the ASX 100 index.

ASX indexes and rankings
Specific ASX indexes can help investors identify mid-cap companies.

The ‘S&P/ASX MidCap 50 index’ contains a pool of 50 eligible companies listed on the ASX. The S&P AIC carries out periodic assessments to determine whether the composition would remain or change.

MidCap 50 covers companies which are ranked numbers 51 to 100 in the S&P/ASX 100 index.

Other fund managers may deviate a bit from the ASX ranking depending on its required market capitalisation but their mid-cap portfolios usually overlap with ASX rankings.

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