The Wall Street strategist who called the last stock plunge says investors are foolishly ignoring one thriving corner of the market

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Large- and small-cap stocks capture all the attention in the market, but one market expert says there's an overlooked middle class that's been thriving.
Ed Clissold — the chief US equity strategist at Ned Davis who successfully predicted the December stock meltdown — lays out a series of compelling arguments in favor of the mid-cap stock space.

When it comes to stock market analysis, the market's biggest companies are often pitted against the smallest.

For example, when the US-China trade war first started rearing its angry head, the prevailing narrative was that more domestically focused small-cap stocks would outperform their more globally exposed large-cap peers.

And while this is undoubtedly a compelling way to look at the market, there's an entire thriving middle class of stocks that goes largely unnoticed. Sure, you'd recognize many of the companies in the group, but they're not exactly big players in the broader market.

Mid-cap stocks are so overlooked, in fact, that the combined market value of the two biggest exchange-traded funds tracking the group is still a full $13 billion less than that of the top two small-cap ETFs.

Ed Clissold, the chief US equity strategist at Ned Davis Research, thinks the sleeper status of mid caps only enhances the group's investing appeal. And he's someone worth listening to, considering he successfully called the December stock meltdown at a time when most on Wall Street were still bullish.

"There are fewer assets chasing it, and fewer analysts covering it," Clissold told Business Insider during a recent meeting. "So if something is being focused on, it has a chance of doing better."

He continued: "Mid caps don't get caught up in the yin and yang between small and large, because they live in both worlds. It's a great place for diversifying."

If you're still not sold, consider this chart, which shows the impressive recent uptrend in the Russell Mid-Cap Index, relative to the broader Russell 3000 universe.

Going beyond near-term historical performance trends, Clissold also cites technical reasons for his bullishness on the mid-cap space. He notes the group — when compared with the entire Russell 3000 universe — is trading above its 50- and 200-day moving average, which is a bullish signal.

Clissold ran the same test for large caps and found the group to be in a downtrend and below both moving averages. Small caps have rebounded slightly, but the group is still at a multiyear low when compared with the Russell 3000.

With all of that established, Clissold has one more argument in favor of mid caps: Their relative anonymity serves them well during rough patches.

"Mid caps have historically tended to outperform both large- and small-cap stocks," he said. "They have the beta characteristics of small caps to some extent. But in down markets, they don't get caught up in the liquidity crunch as much." Read »