Finance Market cap diversification For equity investors, another level of diversification is by market capitalization: how large a company is, as measured by its total market value. Market cap functions as a general measure of where a company is in its development cycle, and gives you a very rough idea of its financial stability. While the distinction between one level and the next can differ, the following are generally agreed upon: Large cap - stocks with a market capitalization of more than $10 billion. Typically, well-established businesses with substantial operating history but, occasionally, they can be hyped-up businesses with big growth prospects (pretty common in the technology sector, for example). Speaking generally, large cap companies have a greater ability to absorb the ups and downs of the economic cycle – a feature that makes them more attractive to conservative investors. Mid cap - companies between $2 billion and $10 billion with higher growth prospects than large-cap companies, but with better financial resources than many small-cap stocks. Mid-caps have historically been somewhat overlooked compared to large caps and small caps, but many can offer an attractive combination of financial resilience and future potential growth, as they make the transition into large cap companies. Small cap - companies between $250 million and $2 billion in value. Many companies in this range have far greater growth potential than larger competitors, but keep in mind that their smaller size often leads them to be much more volatile. Historically, small caps don’t always move in tandem with large companies, providing a level of diversification for the overall portfolio. Micro cap - companies below $250 million in market capitalization. Typically, startups, high-tech innovators and (particularly in Canada) companies in the business of mineral or energy exploration. This is the world of big risk/big reward. Because a good portion of their performance is due to company-specific issues, they can offer an intriguing way for experienced investors with a strong stomach for volatility to diversify more stable areas of their portfolios. CSANews | SUMMER 2025 | 29
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