Public companies, like people, follow a lifecycle. The Allspring Special Global Equity team believes that mid-cap companies sit in a “sweet spot” of the lifecycle. They are more diversified and well-capitalized than their small-cap peers, yet more nimble than slower-moving, large-cap companies. We believe this can provide a structural advantage that is strongest in the middle innings of a market cycle, when macroeconomic factors are typically more muted and when companies are better able to control their destinies through accretive capital deployment.

We can see this thesis bear out by examining the past two market cycles. Figure 1 shows the cumulative returns of the Russell 1000, Russell Midcap, and Russell 2000 indexes from dates that are widely considered market troughs—October 9, 2002, through March 9, 2009. Small-cap companies excelled in the early part of this cycle, providing investors leverage to a rapidly expanding economy. Late cycle, investors preferred the defensive characteristics that the larger, more mature and diversified companies tended to offer. We can see that mid caps led in the middle part of the cycle.

Figure 1

Source: FactSet
Past performance is no guarantee of future results. An investment cannot be made in an index.
Index definitions

Late cycle and middle innings

Figure 2 shows the performance of the same indexes in the most recent market cycle, from the lows of March 9, 2009, to the trough of March 19, 2020. We highlighted in gray the onset of what we believe to be the middle phase of this cycle, from late August 2011 through the market peak in February 2020. For the full expansion, mid caps outperformed. We think this was, in part, due to muted macro factors and an environment where mid-cap companies had the visibility to deploy capital accretively and shape their destiny. We believe the Special Global Equity team was able to further exploit this environment through stock selection.

Figure 2

Source: FactSet
Past performance is no guarantee of future results. An investment cannot be made in an index.
Index definitions

Middle innings outperformance

The historical record illustrated in Figure 3 (shown below) shows that, during this most recent mid-cycle expansion, the Allspring Special Mid Cap Value Fund (WFMIX) produced returns in excess of the Russell Midcap Value Index and the peer median of its Morningstar U.S. mid-cap value style category. The team focuses on companies that have underused balance sheet flexibility that can be deployed for accretive capital investment. Such companies have been rewarded most in markets when macroeconomic factors were not dominant return drivers and when capital expenditures expected to generate incremental cash flow streams were recognized.

Average Annual Returns for the Special Mid Cap Value Fund (WFMIX) as of 9-30-2021

 1 year5 year10 yearGross expense ratioNet expense ratio
Allspring Special Mid Cap Value Fund - Institutional40.30%11.19%14.90%0.81%0.81%

Figures quoted represent past performance, which is no guarantee of future results, and do not reflect taxes that a shareholder may pay on an investment in a fund. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted and assumes the reinvestment of dividends and capital gains. Current month-end performance is available at the funds’ website, Institutional Class shares are sold without a front-end sales charge or contingent deferred sales charge.

The manager has contractually committed, through 1-31-22, to waive fees and/or reimburse expenses to the extent necessary to cap the fund’s total annual fund operating expenses after fee waivers at 0.83%. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses (if any), and extraordinary expenses are excluded from the expense cap. Prior to or after the commitment expiration date, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. Without this cap, the fund’s returns would have been lower. The expense ratio paid by an investor is the net expense ratio (the total annual fund operating expenses after fee waivers) as stated in the prospectus.

Please keep in mind that high double-digit returns were primarily achieved during favorable market conditions. You should not expect that such favorable returns can be consistently achieved. A fund’s performance, especially for short time periods, should not be the sole factor in making your investment decision.

Figure 3

Cumulative return through the middle innings 

Source: FactSet and Morningstar Direct
Past performance is no guarantee of future results. An investment cannot be made in an index. Index performance is not representative of the performance of the Allspring Special Mid Cap Value Fund (WFMIX).
Index definitions

If we look at the current cycle, beginning after March 2020’s COVID-19-inspired lows, we again have seen small caps lead the market. As this cycle matures, we are seeing increasing optimism from the CEOs of companies we directly engage, who are frequently citing opportunities to exploit the strength of their companies’ balance sheets. This reminds us of what we experienced in the last cycle. Timing market cycles is never easy to do, but as investors look toward the future and the current cycle matures, we have increasing optimism for mid-cap companies and for our investment process in the next three to five years.

Carefully consider a fund’s investment objectives, risks, charges, and expenses before investing. For a current prospectus and, if available, a summary prospectus, containing this and other information, visit Read it carefully before investing. 

Diversification does not ensure or guarantee better performance and cannot eliminate the risk of investment losses.

Stock values fluctuate in response to the activities of individual companies and general market and economic conditions. Smaller-company stocks tend to be more volatile and less liquid than those of larger companies. Consult the fund’s prospectus for additional information on these and other risks.

©2021 Morningstar. All rights reserved. The information contained herein is proprietary to Morningstar and/or its content providers; may not be copied or distributed; and is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.


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