One of the key differences is that the average size of a top 20 company is A$19,776 million, compared to A$1,605 million.
The argument about size and composition is that larger companies are more mature, while mid-cap companies fall into the growth category.
Also, Tower argues, that once a company is in the top 20 it is likely to stay there, while the composition of the MidCap index is more likely to change.
“The Leaders 20 could be said to be biased towards capturing and retaining the companies that grow their way to the top end of the market, whereas the MidCap 50 is a transition zone for companies with that type of growth trend.”
The analysis of returns suggests that the Leaders 20 has outperformed the MidCap 50 and S&P/ASX 3000 over the past 10 years and that there is considerable variation in volatility between the various indices.
An argument against the Leaders 20 is that it is heavily weighted towards the banks (all four major trading banks are in the index). Tower says that about 30% of the mid cap index is invested in the financials sector.
“For the other industrial sectors there is attractive complementarity evident,” it says.
Tower says that MOZY should not be seen as a replacement for OZZY. It claims that its fund “has the edge” over the NZX one.
And to prove all is fair in love and funds management it suggests that MOZY could be combined in a portfolio with OZZY as a “complementary tilt” – in other words it says that advisers can use some MOZY but they should that use more of OZZY.
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