Reports of mid- and small-caps being overvalued might be exaggerated. Swipe to know more.
Contrary to the prevalent belief, the valuations of the two indices still seem comfortable when compared with their respective five-year median P/E.
Notably, the mid-cap index is trading at its five-year median P/E and the small-cap gauge at a mere 1% premium to its five-year median.
A closer look reveals that only 38% of top 150 mid caps and 37% of top 500 small caps are richly valued, trading at premiums of over 25% to their respective 5-year median.
Nearly 35% of the mid-cap cohort (top 150) and 41.2% of the small-cap pack (top 500) are still trading below their respective five-year median P/E.
Our analysis shows while there are pockets with stretched valuations, it will be wrong to conclude the entire space as richly valued. A large lot, as shown, is still undervalued.
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