But the cliché is right: past returns aren't necessarily a guide to future ones. The 250's great performance might not last. To know this, of course, we must know what determines its returns. Since 1990, a handful of systematic factors have accounted for much of its annual returns relative to the FTSE 100. These are:
■ Valuations. A high dividend yield on the 250 relative to the 100 predicts higher returns over the following 12 months.
■ The yield curve. When 10-year gilt yields rise relative to two-year ones, the FTSE tends to outperform. This is because a steeper yield curve is usually associated with expectations of stronger economic growth, and the 250 is more cyclical than the 100.
■ The $/£ rate. Sterling strength hurts the 250 more than the 100.
■ Commodity prices. Higher gold prices favour the 250, but higher oil prices favour the 100.
■ Global equities. The 250 tends to outperform the 100 when the MSCI world index rises. It has a higher beta with respect to global markets; the 100 is more defensive.
These factors explain almost half the variance in annual returns on the 250 relative to the 100 since 1990. This might not sound much, but given how volatile those returns have been and that these factors have accounted for the main ups and downs in relative performance, it's not too bad.
These help explain why mid-caps have done so well in the past five years. Rising world equity markets, the stronger dollar and the drop in oil prices since the autumn have all helped.
But here's the thing. If we control for all these, then the 250's outperformance disappears. If we assume no change in these factors then current dividends (which actually aren't far from their long-term averages) predict that the 250 will underperform the 100 by 0.8 per cent in the next 12 months.
This implies that the 250 does not have, on average, significant alpha. Its good returns are due not to an intrinsic tendency for 250 stocks to be better than 100 ones, but rather to exposure to risk factors that have paid off recently.
Yes, some mega-cap stocks such as BP and Tesco have got into trouble, perhaps because they are so huge as to suffer diseconomies of scale. But mid-caps can suffer too: Soco, Lonmin and Telecom Plus to name but three have also fallen a lot in the past 12 months.
In fact, from one perspective, mid-caps are misnamed. Compared with most UK companies, they are enormous. Figures from the ONS show that of the 2.2m businesses in the UK only 0.3 per cent have a turnover of more than £50m. This fact tells us two opposing things: that diseconomies of scale are very important as they limit the size of most companies; and that companies that have overcome them to enter the 250 or 100 must have been doing a lot right to grow so big.
The 250's lack of intrinsic outperformance relative to the 100 is consistent with Gibrat's law - the idea that corporate growth is independent of size. While this theory is controversial - 'law' is a misnomer - it is intuitively appealing. If smaller companies grew faster than big ones we'd eventually end up with all companies being the same size. Or if big ones grew faster than small ones we'd end up eventually with just one huge monopoly. Centuries of capitalism, though, have given us neither. For me, this supports Gibrat's law. Which implies that we shouldn't expect the 250 to outperform the 100 over the long term, or vice versa.
Now, none of this means you should dump mid-caps. These probably would beat the 100 if global markets do well, the dollar rises or if the yield curve steepens - which are all quite possible. What it does mean, though, is that the 250's performance depends upon these forces rather than upon any intrinsic tendency for mid-caps to do better than mega-caps.
