Mid-cap stocks are often called the “sweet spot” in the market-capitalization spectrum for equity investing. History agrees. Mid-cap performance has delivered a solid premium over large-caps and small-caps over the last two decades. This is a bit of conundrum for financial economics. The academy’s models, after all, insist that small caps are destined for stellar performance over the rest of the field. But the track record over the last 20 years has thrown out the script and awarded the gold to mid-caps.

The debate about why mid-caps win the performance race runs far and wide. Some analysts say it’s a matter of faulty benchmarks, particularly in the small-cap space. Others argue that the strong mid-cap returns are bound up with the small-cap premium by way of small companies that grow larger. There’s also plenty of disagreement about what exactly defines the borderline between small- and mid-cap stocks. Is it a $500 million market cap? $1 billion… $5 billion? Meantime, an interesting study by Cliff Asness and his colleagues at AQR Capital recently penned an intriguing explanation by advising that controlling for small-cap junk (companies that are suffering for one reason or another) revives the case for expecting a small-cap premium. (For a summary of the paper’s conclusions, see my review here.)

Whatever the explanation, there’s no denying that mid-caps have provided superior returns vs. small- and large-cap stocks, at least in terms of the standard indexes. Let’s dig into the details a bit by reviewing a set of popular benchmarks:

Russell Mid-Cap Price Index
Russell 1000 Price Index (large cap)
Russell 2000 Price (small cap)

A buy-and-hold investment strategy in all three benchmarks tells the story. A $1 investment in this trio on Dec. 31, 1995, would now (as of Sep. 14, 2016) be worth roughly $4.75 for the mid-cap portfolio—well above the $3.37 for small caps and $3.10 for large caps. As relative performance comparisons go, this test looks rather decisive in favor of mid-caps.