Mid- and small-cap funds: Still rewarding, no longer easy

Summary: Mid- and small-cap returns are no longer easy or evenly distributed. The gap between the best and worst funds spans 16 percentage points. In this market, which fund you pick matters more than ever. Mid- and small-cap funds operate in a part of the market where the upside is larger, but so is the room for error. Mid-cap funds invest in companies ranked 101st to 250th by market value, while small-cap funds go further down the market-cap ladder beyond the top 250. These are businesses still scaling up. Market positions are less settled and stock prices react more sharply to both promise and disappointment. That makes these funds rewarding over long periods, but far less forgiving along the way. For investors, the trade-off is clear: stronger long-term potential, but a much bumpier ride. Key trends Performance: The tone of the market has changed meaningfully over the past few years. The broad rally that lifted much of the mid- and small-cap universe in 2023 gave way to a tougher environment in 2025. Mid caps proved relatively more resilient, while small caps weakened more sharply. Returns are no longer easy or evenly distributed. That turbulence appears to have carried into 2026 as well. Fund selection matters more again: A softer market phase makes the gap between funds far more visible. In the mid-cap category, one-year returns as of January 31, 2026 range from 16 per cent for the best performer to -9 per cent for the weakest. Small-cap funds show a similarly wide spread of over 16 percentage points. This dispersion is an

This article was originally published on March 20, 2026.