For investors, the mid-cap sector can get lost in the shuffle between the alluring promise of small-cap stocks and the familiar market leaders of the large-cap sector.

But the mid-cap market – which encompasses stocks in the range of about $7 billion to $35 billion in market cap – offers a world of opportunity for investors looking for long-term growth potential with a bit more stability than many of the stocks of the small-cap universe.

“The mid-cap market offers more established business models, more established management teams, and a little less risk versus small cap stocks,” explained Brian Flanagan, senior portfolio manager of Thrivent Mid Cap Stock Fund (TMSIX). “And it typically offers better growth opportunities versus large cap stocks.”

While the large cap sector has been leading the way in terms of performance recently – particularly the technology area – Flanagan points out that “over the long-term, mid-caps have traditionally offered better growth than the large caps.”

Although the mid-cap universe has trailed the blue chips in recent years, as the economy unwinds from the pandemic, Flanagan believes a number of factors could favor the growth of mid-cap stocks.

For instance, as the pandemic continues to fade, economies around the world could see renewed growth. Strong consumer balance sheets and savings rates could also benefit mid-cap stocks.

What’s behind Thrivent Mid Cap Stock Fund’s industry-leading performance?

Thrivent Mid Cap Stock Fund – Class S (TMSIX) was recently recognized as a Refinitiv Lipper Fund Awards 2022 winner for “U.S Best Mid-Cap Core Funds Over 5- and 10-Years” (out of 234 and 150, respectively, for the period ended November 30, 2021). (See: Our Achievements)

Flanagan attributes much of that success to three key factors – people, process and patience.

“Thrivent has an outstanding investment division with experience through many different market cycles and dynamics across industries,” said Flanagan, “The Fund management team – Brett Schweisow, Chad Miller and I – has the support of a 24-person fundamental  and quantitative research team with over 20 years of average experience.”

Their investment process focuses on adding value by investing in attractive companies at good valuations while controlling risk. “It begins with a quantitative screening process that identifies attractive companies that we should do the fundamental research on,” added Flanagan.  That research revolves around three main areas:

1. Operating performance. “We’re looking for companies that can maintain a high return on invested capital or improve their return on invested capital through revenue growth, operating efficiencies, and capital management.”
2. Valuation. The team determines an underlying value for each company in the portfolio through fundamental research, such as discounted cash flow analysis, free cash flow yield analysis, and the comparative analysis of the stock’s relative or normalized earnings multiple to the market (depending on the sector).
3. Market sentiment. “We try to identify how our thesis on a company is different than the market’s. Some of the factors that we analyze are insider transactions and valuation spreads across the industries.”