S&P: Not All Mid-Cap ETFs Created Equal (MDY, VO)
With no shortage of ETFs offering exposure to mid-cap stocks, investors face a dizzying array of choices. However, not all mid-cap funds are the same - a theme highlighted by S&P Capital IQ in a recent research note.
Mid-caps outperformed their large-cap rivals in 2010, but have lagged large-caps last year and in the first half of 2012. Even so, the SPDR S&P MidCap 400 ETF (NYSE: MDY) and the Vanguard Mid-Cap ETF (NYSE: VO) have logged year-to-date gains of around 9.6 percent and 8.9 percent, respectively. S&P rates both funds Marketweight.
"One of the most prominent differences in these two ETFs' holdings is the breakdown in the size of the constituent companies - both are billed as mid-cap plays, but VO has a greater slant towards larger-cap companies, with a weighted average market cap of $7.2 billion among its holdings, compared to a significantly lower $3.9 billion for MDY," S&P said in the note.
MDY, which charges 0.25 percent per year in fees, is home to 401 stocks and $9.64 billion in assets under management (AUM). VO charges just 0.1 percent and held 464 stocks at the end of May. The ETF had $3.57 billion in AUM at the end of June, according to data from the ETF Industry Association. MDY has beaten VO over the past five years.
"We think MDY has benefited from being relatively light compared to VO in the Energy sector (5.3% exposure vs. 8.1%), which was the worst-performing sector in the S&P MidCap 400 Index average this year," S&P said in the note. "VO, meanwhile, has been helped by its relatively larger holdings in Consumer Discretionary and Consumer Staples (17.8% and 5.4% respectively, vs. 13.7% and 4.2% for MDY), which have done relatively well thus far in 2012. While that is the past, it is notable that MDY has greater exposure to the Industrials sector, where S&P Capital IQ equity analysts have a number of Buy recommendations on mid-cap companies."
VO's largest sector allocation is consumer discretionary. That sector accounts for around 18.8 percent of the fund's weight. Financials check in at close to 18 percent, while technology and industrial names account for approximately 14.7 percent and 12.5 percent of the fund's weight, respectively.
MDY features an allocation north of 22 percent to finanicals and a 16.1 percent weight to industrials. Technology, consumer discretionary and health care stocks also receive double-digit allocations in the ETF. MDY's top-10 holdings include Vertex, Regeneron Pharmaceuticals (NASDAQ: REGN), HollyFrontier (NYSE: HFC), Kansas City Southern (NYSE: KSU) and PetSmart (NASDAQ: PETM).
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