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SMID Cap Value
Mid Cap Value
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For more detailed information on our Alternative offerings, please reach out to tswinfo@tswinvest.com

INVESTMENT PERSPECTIVE

We seek to invest where the market has underpriced a company relative to our estimate of value, where we can identify potential catalysts to close the gap between our perception and the market’s perception of value and where we see an asymmetric return profile with much greater upside potential than downside risk.

Why Mid Cap Value

Perspectives
March 2025

At TSW we define ourselves as a traditional value manager who seeks to identify stocks that trade at a discount to intrinsic value, with identifiable catalysts that are likely to close the valuation gap over a 2–3-year time frame, on average. We follow a consistent and repeatable fundamentally oriented process that has been time tested across a variety of market cycles.

Why Mid Cap Value?

Despite the material outperformance of large-cap and growth equities compared to their smaller and value-oriented counterparts over the last 10-15 years, the Russell Midcap® Value Index has delivered both the strongest absolute performance and highest risk-adjusted returns (i.e., Sharpe ratio) amongst the nine Russell style boxes over the past 25 years.

As evidence above highlights, midcap stocks deserve a key allocation in client portfolios. Midcap companies ultimately combine the positive attributes of both small and large-cap companies. Like small caps, they are often less closely followed by Wall Street analysts and often feature attractive growth prospects relative to some of their larger cap peers. At the same time, they share some of the stability of large caps, with diversified business lines, better access to financing than some of their small cap counterparts, and experienced management teams. Furthermore, the Russell Midcap® Index currently represents just 21% of the broad U.S. investable market, as measured by the Russell 3000® Index. This low level of concentration hasn’t been witnessed since the depths of the dot-com bubble in 2000, providing clear diversification benefits for clients.

Why Invest in the Mid Cap Value Asset Class Now?

The chart below illustrates historical rotations between value and growth within the broad U.S. market, as represented by the Russell 3000® Value versus Russell 3000® Growth, over rolling five-year periods. As one can see, the current dynamic between value and growth is longer in duration than what preceded the dot-com bubble, with the spread larger in magnitude. We believe the current market dislocation is at historic levels, most notably within the value style. Similarly, even within value, we have noticed a substantial mispricing between cheaper and more expensive cohort of stocks. In our estimation, the environment remains as favorable as we can remember for price-sensitive value investors willing to focus on fundamentals and normalized cash flow over a longer timeframe. We believe value is the one asset class within the domestic markets that has the true potential to deliver “equity-like” returns over the next 5-10 years.

Separately, when looking over the past 15-years following the aftermath of the financial crisis, the valuation discount for midcaps relative to large caps remains at a notable spread to its historic relationship. Similarly, even within the mid-cap space, there currently is a notable discount between smaller capitalized stocks and those at the higher end of the capitalization spectrum.

Why TSW Mid Cap Value?

TSW Mid Cap Value is a truly differentiated offering relative to peers that offers clients with the following key attributes:

A) Consistent, repeatable process delivered by a stable and tenured team that is designed to outperform in a variety of market environments. Equally important is the strategy’s ability to limit downside capture relative to the Russell Midcap® Value Index. We would argue this attribute is always important, but even more so today as we sit in a historically expensive market that has been predominantly driven by multiple expansion and more risk-on, speculative behavior.

B) Style pure, price sensitive and discount value posture relative to most peers and the Russell Midcap® Value Index against a historic dislocation between growth and value, and even within value, cheaper and more expensive cohorts of stocks; and

C) Modestly smaller market capitalization footprint within the Mid Cap Value universe given the severe dislocation between larger and smaller cohorts of stocks.

We believe this is one of the best times in history to take advantage of the severe market dislocation, notably within the value opportunity set, and for those that have a true price-sensitive approach to value investing.

IMPORTANT DISCLOSURE: This commentary is intended for informational purposes only and does not constitute a complete description of our investment services, analysis, or performance. This commentary is in no way a solicitation or an offer to sell securities or investment advisory services. The expressed views and opinions contained herein are for informational purposes only, are based on current market conditions, and are subject to change without notice. Although information, opinions, and statistics contained herein have been obtained from sources believed to be reliable and are accurate to the best of our knowledge, Thompson, Siegel & Walmsley LLC (“TSW”) cannot and does not guarantee the accuracy, validity, timeliness, or completeness of such information and statistics made available to you for any particular purpose.  This commentary should not be considered as investment advice or a recommendation of any particular security, strategy, or investment product. Past performance is not indicative of future results. No part of this commentary may be reproduced in any form, distributed, or referred to in any other publication, without express written permission of TSW.

GENERAL ECONOMIC & MARKET COMMENTARY DISCLOSURE: Comments and general market related projections are based on information available at the time of writing and believed to be accurate; are for informational purposes only, are not intended as individual or specific advice, may not represent the opinions of the entire firm and may not be relied upon for future investing. Certain information contained in this material represents or is based upon forward-looking statements, which can be identified by the use of terminology such as “may”, “will”, “should”, “expect”, “anticipate”, “target”, “project”, “estimate”, “intend”, “continue” or “believe” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events or results or the actual performance of an Account may differ materially from those reflected or contemplated in such forward-looking statements. Investors are advised to consult with their investment professional about their specific financial needs and goals before making any investment decisions. Past performance is not indicative of future results.

EQUITY SECURITIES RISK: Equity securities generally have greater risk of loss than debt securities. Stock markets are volatile, and the value of equity securities may go up or down, sometimes rapidly and unpredictably. The value of equity securities fluctuates based on real or perceived changes in a company’s financial condition, factors affecting a particular industry or industries, and overall market, economic and political conditions. If the market prices of the equity securities owned by the strategy fall, the value of your investment in the strategy will decline. Your portfolio may lose its entire investment in the equity securities of an issuer. A change in financial condition or other event affecting a single issuer may adversely impact securities markets as a whole.

PRINCIPAL RISK: Risk is inherent in all investing. Many factors and risks affect performance. The value of your investment, as well as the amount of return you receive on your investment, may fluctuate significantly day to day and over time. You may lose part or all of your investment in your portfolio or your investment may not perform as well as other similar investments.  An investment in the strategy is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. You may lose money if you invest in this strategy.

VALUE INVESTING RISK: The prices of securities TSW believes are undervalued may not appreciate as anticipated or may go down. The value approach to investing involves the risk that stocks may remain undervalued, undervaluation may become more severe, or perceived undervaluation may actually represent intrinsic value. Value stocks as a group may be out of favor and underperform the overall equity market for a long period of time, for example, while the market favors “growth” stocks.

INDEX DEFINITIONS 

Russell Midcap® Index: The Russell Midcap® Index measures the performance of the mid-cap segment of the U.S. equity universe. The Russell Midcap® Index is a subset of the Russell 1000® Index. It includes approximately 800 of the smallest securities based on a combination of their market cap and current Index membership.

Russell 1000® Value Index: The Russell 1000® Value Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 companies with relatively lower price-to-book ratios, lower I/B/E/S forecast medium term (2 year) growth and lower sales per share historical growth (5 years).

Russell 1000® Growth Index: The Russell 1000® Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe. It includes those Russell 1000 companies with relatively higher price-to-book ratios, higher I/B/E/S forecast medium term (2 year) growth and higher sales per share historical growth (5 years).

Russell 2000® Index: The Russell 1000® Index measures the performance of the large-cap segment of the US equity universe. The Russell 1000 Index is a subset of the Russell 3000® Index which is designed to represent approximately 98% of the investable US equity market. It includes approximately 1,000 of the largest securities based on a combination of their market cap and current index membership.

Russell 2000® Value Index: The Russell 2000® Value Index measures the performance of the small-cap value segment of the U.S. equity universe. It includes those Russell 2000® companies with relatively lower price-to-book ratios, lower I/B/E/S forecast medium term (2 year) growth and lower sales per share historical growth (5 years).

Russell 2000® Growth Index: The Russell 2000® Growth Index measures the performance of the small-cap growth segment of the U.S. equity universe. It includes those Russell 2000 companies with relatively higher price-to-book ratios, higher I/B/E/S forecast medium term (2 year) growth and higher sales per share historical growth (5 years).

Russell 2000® Index: The Russell 2000® Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 Index is a subset of the Russell 3000® Index and includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership.

Russell Midcap® Growth Index: The Russell Midcap® Growth Index measures the performance of the mid-cap growth segment of the U.S. equity universe. It includes those Russell Midcap® Index companies with relatively higher price-to-book ratios, higher I/B/E/S forecast medium term (2 year) growth and higher sales per share historical growth (5 years).

Russell 3000® Value Index: The Russell 3000® Value Index measures the performance of the broad value segment of the US equity value universe. It includes those Russell 3000 companies with relatively lower price-to-book ratios, lower I/B/E/S forecast medium term (2 year) growth and lower sales per share historical growth (5 years).

Russell 3000® Growth Index: The Russell 3000® Growth Index measures the performance of the broad growth segment of the US equity universe. It includes those Russell 3000 companies with relatively higher price-to-book ratios, higher I/B/E/S forecast medium term (2 year) growth and higher sales per share historical growth (5 years).

Russell Midcap® Value Index: The Russell Midcap® Value Index measures the performance of those Russell Midcap® Index companies with lower price-to-book- rations and lower forecasted growth values. The Index is reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the midcap value market.

S&P 500® Index: The Index measures the performance of the large-cap segment of the market. Considered to be a proxy of the U.S. equity market, the Index is composed of 500 constituent companies.

© 2025 Thompson, Siegel & Walmsley LLC (“TSW”). TSW is an investment adviser registered with the SEC. Registration does not imply a certain level of skill or training. All information contained herein is believed to be correct but accuracy cannot be guaranteed. TSW and its employees do not provide tax or legal advice. Past performance is not indicative of future results; past performance does not guarantee future results, and other calculation methods may produce different results. There is the possibility of loss of principal value. Certain GIPS® disclosures are provided on TSW’s website at www.tswinvest.com,  others are available upon request. TSW is a trademark in the United States Patent and Trademark Office.

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Thompson, Siegel & Walmsley LLC ("TSW") is a registered investment adviser located in Richmond, VA and founded in 1969.

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