Market Capitalization

Market capitalization is the market price of an entire company, calculated by multiplying the number of shares outstanding by the price per share. Morningstar categorizes a fund’s market capitalization by studying the size of the companies that the fund is investing in. There are three categories: large, medium, and small. In general, the largest 250 stocks are considered large cap, the next 750 are considered medium cap, and the rest are considered small cap.

In term of risk/reward relationship, large cap companies tend to be more stable and provide lower rate of return due to its relative safety. On the other hand, small cap companies tend to be more risky and volatile, thus provide higher rate of return as risk premium.