Small- and mid-cap stocks (SMID) have underperformed large-caps over the past 12 months, but may be in a better position to generate market-beating returns going forward. SMID companies tend to focus on domestic markets, so their businesses could be less disrupted by the fallout from global events. As well, the prices of SMID stocks generally are lower than the prices of large-caps. As well, there are long stretches in the record books when SMID stocks have outperformed large-caps. That said, SMID stocks can be risky. The standard deviation for monthly returns was 5.7% for SMID stocks over a 2003-2021 test period, versus 4.3% for large-caps. Still, despite the risks, diversified investors look to have exposure to small- and mid-caps based on the long-term performance record.

U.S. markets were mixed on Friday morning, but are still on track for gains for the week. On the earnings front, FedEx (FDX) rose 7% on an earnings beat, while Nike (NKE) was down about 7% on a weak outlook. The Dow was down 0.5%, the S&P 500 fell 0.1% and the Nasdaq gained less than 0.1%. Crude oil traded above $80 per barrel, while gold fell $16 to $2169 per ounce.

This pick list highlights constituents of the Morningstar US Mid Cap Index that we believe offer investors the best risk-adjusted return prospects. The market capitalization range for U.S. mid-caps typically falls between $1 billion and $8 billion and represents 20% of the total capitalization of the U.S. equity market.

We have three strategic asset-allocation models, based on risk-tolerance: Conservative, Moderate and Aggressive. We make tactical adjustments to the models based on our outlooks for the capital markets. February was a solid month for equity investors, as the S&P 500 advanced 5.3%, compared to a 1.8% decline for the fixed-income benchmark ETF AGG. Looking ahead, our Stock-Bond Barometer model slightly favors bonds over stocks for long-term portfolios, in light of the recent rally in equities. Drilling down into stocks, we are over-weight on large-caps. We favor large-caps for growth exposure and financial strength, while small-caps are selling at historical discounts relative to large-caps and offer value. Internationally, U.S. stocks have outperformed global stocks over the trailing one- and five-year periods. We expect this to continue, given the U.S. market's embrace of the innovative Tech sector. In terms of growth versus value, we anticipate that, over the long term, growth, led by the Tech, Consumer, and Healthcare sectors, will top returns from value, led by Energy, Real Estate and Materials, due to secular and demographic trends. As for the fixed-income segment of a portfolio, we break bonds into four areas: Core, such as the industry benchmark ETF AGG or Treasuries; Inflation-Indexed; Opportunistic, such as securitized debt, corporate debt, high-yield or floating bonds; and Cash. We are focused on Core and Opportunistic. On duration, we recommend a shorter term. Last are alternatives. Given the early stage of the current bull market, we think alternatives are less desirable in the growth portion of our models.

The Vickers Top Buyers & Sellers is a daily report that identifies the five companies the largest insider purchase transactions based on the dollar value of the transactions as well as the five companies the largest insider sales transactions based on the dollar value of the transactions.

This pick list highlights constituents of the Morningstar US Large Cap Index that we believe offer investors the best risk-adjusted return prospects. Stocks of large-cap companies where neither growth nor value characteristics predominate. Stocks in the top 70% of the capitalization of the U.S. equity market are defined as large cap.