There is a new favourite: Why midcaps are outperforming smallcaps

Smallcaps thrown off stride as regulatory hurdles and high valuations take the reins

Smallcap and midcap funds have long been investor favourites, but a shift in preference is becoming evident. Midcap funds have seen a steady increase in new investment accounts, or folios, for the past six months, with higher inflows in the past three months. This marks a contrast to the previous two years, when smallcap funds attracted greater net inflows and folio additions.

 

Industry experts link this trend to limits on new investments in many large smallcap funds. Early in 2024, most large smallcap funds halted lump sum investments and capped systematic investment plan contributions. These measures followed regulatory guidance to