Investment Fundamentals

Market Capitalization

Market capitalization, often referred to as market cap, is one of the fundamental investment concepts. The JRB offers a variety of equity funds described as “Large-Cap,” “Mid-Cap,” and “Small-Cap.” What does this mean and why is it important?

Market capitalization measures the total value of a company – the relationship between the number of shares of stock and the stock’s price. It tells you the size of a company in dollars. Market capitalization is calculated by multiplying a company’s outstanding shares of stock by the price of each share. Assume a company has 10 million shares of stock. The stock sells for $50 per share. The market capitalization of the company is $500 million (10 million shares x $50).

Investors generally group companies into one of three major categories based on market capitalization – large-cap, mid-cap and small-cap. Experts may differ about the specific range of each category, but the general features of each group remain the same.

Characteristics of Large-Cap Companies

Large-cap companies generally exceed $10 billion in market capitalization, though it’s not uncommon for analysts to define companies with a market capitalization of $5 billion and above as large-cap. Examples of large-cap companies include Intel, Walt Disney Company and CVS Health Group.

The largest large-cap companies, often called mega-caps, have market capitalizations above $200 billion. Mega-caps are generally industry leading companies such as Apple, Berkshire Hathaway and JPMorgan Chase. Once again, experts may set a different minimum size for a company to be considered a mega-cap.

Large-cap companies are often considered more mature than mid- and small-cap firms. They often pay dividends to investors and experience less volatility. This means they may grow more slowly in bull markets (a sustained period during which stock prices rise) and suffer smaller declines during market downturns.

JRB Large-Cap Investment Options

Characteristics of Mid-Cap Companies

Mid-cap companies carry market capitalization of $1-$2 billion on the low side and $5-$10 billion on the high side. Examples of mid-cap companies include UnitedHealth Group, Best Buy, and Dunkin’ Brands Group. As you might expect, mid-cap stocks tend to be more volatile than large-caps. While they may offer greater opportunities for growth, they also carry greater risk during declining markets.

JRB Mid-Cap Investment Options

Characteristics of Small-Cap Companies

As you might expect, small-cap companies have market capitalizations below $1 - $2 billion. These are often newer, more entrepreneurial and less well known companies. Examples include Mellanox Technologies, Wintrust Financial Corporation and Teradyne. Small-caps are generally more volatile than large-cap companies, with greater potential for growth and decline. Put another way, small-cap stocks typically do better than large-caps during rising markets and worse during down markets.

JRB Small-Cap Investment Option

Market Capitalization – Implications for Your Portfolio

The JRB’s mutual fund offerings, whether large-, mid-, or small-cap options, invest in a wide range of companies. Holding the stocks of many corporations reduces the impact of a single stock underperforming.

Considering market capitalization is an important component to creating a diversified portfolio. The balance of large-, mid-, and small-cap investments in your portfolio affects your ability to get the most out of the market when it is going up while limiting the impact when the market declines. Make choices that reflect your risk tolerance, time horizon and your projected return on investment.

It can be difficult balancing these factors. But the JRB can assist you. Contact us at staff@jrbcj.org or 888-JRB-FREE (572-3733) to set up a time to discuss structuring your portfolio.