In short: Cautious near term, adamant over ten years. The mark is given straight: recommended "back on March 18th, 2024… IJH has risen about 30%. With dividends included, the total return has been 33%. That's a compound annual growth rate of around 12 ½%. Clearly a pleasant outcome, but the S&P 500 has significantly bested this with a 50% total return." The shortfall is then explained rather than excused — cap-weighted construction ("the top 10 S&P constituents represent 38%"), mega-cap earnings, and above all the quality of those earnings: the S&P's forward P/E went 21× → 20× across a 50% total return, so it was all E, and that E leans on "companies such as GOOG reporting massive gains on their holdings in AI entities like Anthropic." Hence: "Mid-Caps have lacked this immense, though unsustainable, earnings booster rocket. Our belief is that there is a looming mean reversion in the S&P 500's profit margins. If so, this will work in favor of IJH, as well as the other Mid-Cap ETFs." The valuation is stated without spin: mid-caps trade at "a forward P/E… of 17. That's not outrageous by any means, but it is close to the peak this decade outside of the pandemic period." The structural edge is the index-graduation argument — mid-cap indices hand their parabolic winners to the S&P at peak market cap (SMCI −70% post-"graduation," TSLA the bigger case) — "perhaps this effect is a prime factor behind Mid-Cap's long-term outperformance of the S&P 500," and "Mid-Caps/IJH have clobbered the S&P 500 for the full duration of the 21st century," despite badly lagging the last 15 years. Near term the house is cautious — "an unusually large number of threats hovering over the market. Margin debt having gone vertical is merely one of them, though among the most serious… we'd be cautious even with Mid-Caps and, for risk wary types, we wouldn't quibble with booking some gains on IJH." The conviction is on the horizon: "over the next 10 years, we are adamant that Mid-Caps will dramatically outperform the world's most beloved equity index." Sizing concession, not a downgrade; still a Haymaker Buy-list name.
IJH is a fund that owns the 400 medium-sized American companies that sit just below the S&P 500 in size — big, established businesses, but not household-name giants. Haymaker recommended it in March 2024 as a low-risk way to own US stocks.
Hay marks the result honestly, and it is a mixed one: IJH is up about 30%, or 33% including dividends, which works out to roughly 12½% a year. Perfectly good in isolation — but the S&P 500 returned 50% over the same period. He spends most of the note explaining why, because the explanation is the reason to keep holding.
First, the S&P is weighted by company size, so the biggest names dominate: the ten largest now make up 38% of the whole index. Second, and this is the key observation, the S&P got 50% more expensive in price but actually got slightly cheaper on earnings — its forward price-to-earnings ratio went from 21 to 20. That means every bit of the gain came from profits growing, not from investors paying up. So the whole case for the S&P rests on those profits being real and durable.
Hay's argument is that a large slice of them are neither. Alphabet, for example, owns a stake in the private AI company Anthropic; when Anthropic's valuation rises, Alphabet books a paper gain that flows through its reported profits. In the first half of this year, those kinds of gains made up more than half of Alphabet's profits. That is not money from selling ads or cloud services — it is a mark-up on an investment, and it stops the moment private AI valuations stop rising. Mid-sized companies have no equivalent, which is why their earnings looked so dull by comparison. If, as Hay expects, the S&P's unusually fat profit margins revert toward normal, the comparison flips: measured on normal margins, "the S&P 500 is far more overpriced than it superficially appears."
The second structural argument is more interesting and less familiar. Index funds must buy what the index adds. When a mid-sized company's shares go parabolic, its market value eventually qualifies it for the S&P 500 — so the mid-cap index sells it and the large-cap index buys it, at or near the peak. Super Micro Computer is the example: Haymaker cited it as a mid-cap winner in early 2024, it was promoted to the S&P almost immediately, and it has since fallen nearly 70%. Any one such event is too small to matter, but "multiplied by dozens, if not hundreds," it becomes a permanent drag on the large-cap index and a quiet gift to the mid-cap one, which keeps the steady compounders and hands off the blow-offs. Tesla, he notes, was a much bigger and more controversial version of the same problem.
Two caveats he raises himself. Mid-caps are not bargain-priced — 17 times next year's expected earnings is "not outrageous… but close to the peak this decade." And the overall market worries him: there is "an unusually large number of threats," of which the most serious he names is margin debt — money investors have borrowed against their portfolios to buy more stock — "having gone vertical." Borrowed money is what turns an ordinary decline into a forced-selling one.
So the position is being held with two different time horizons. Near term he is cautious and "wouldn't quibble with booking some gains" if you are risk-averse. Over ten years he is "adamant" that mid-caps will dramatically outperform the S&P 500 — the long structural arguments need time to work, and he says so.
In short: His most-preferred US-equity exposure — mid-caps at ~15–17× earnings, a big discount to the S&P, and outperforming.
IJH holds mid-cap stocks — medium-sized US companies that sit between the giants and the tiny names. This is Hay's single favorite way to own US stocks right now.
The appeal is the discount: mid-caps trade at roughly 15–17× earnings, well below the lofty S&P 500, and they've been outperforming it. So you get cheaper valuations and you sidestep the bubble megacaps — "if you want to be in the US market, I think that's a pretty good one to overweight."
40:08I don't know if you could pull that up uh to show what that, but I believe that's outperforming the S&P as well. — What's the ticker for the midcap? — Try JH. — There we go. Yeah, that's slightly outperforming as well. — And and the valuation we got, you know, kind of 15, 16, 17 times earnings, so pretty big discount.
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Verbatim excerpts from the public transcripts (auto-pulled at each mention's timestamp, lightly cleaned). Timestamps link into the video; "source page" opens that commentator's full analysis at this row. Click a mention's header line to expand it (one open at a time). For personal study — not investment advice.