Mid-cap index funds are a great tool for investors to get exposure to mid-sized U.S. companies that fall between small-cap and large-cap funds.
Investing in mid-caps can provide more significant growth potential than large-caps without the volatility and instability of small-caps. As such, mid-cap index funds offer a way to strategically diversify your portfolio.
Quick Look at the Top Mid-Cap Index Funds:
| Ticker | Company | ±% | Price | Invest | ||
|---|---|---|---|---|---|---|
1. iShares Core S&P Mid-Cap ETF (NYSEARCA: IJH)
| Ticker | Company | ±% | Price | Invest | ||
|---|---|---|---|---|---|---|
As one of the largest mid-cap ETFs, IJH offers investors an efficient way to gain diversified exposure to 400 mid-sized U.S. stocks. IJH tracks the S&P MidCap 400 Index.
Since its inception, IJH has enjoyed returns of 9.23%. With low fees of 0.05% and YTD returns of 8.22%, IJH has many potential benefits for investors seeking diversification.
2. iShares Russell Mid-Cap ETF (NYSEARCA: IWR)
| Ticker | Company | ±% | Price | Invest | ||
|---|---|---|---|---|---|---|
IWR is a compelling choice if you’re looking for diversified mid-cap exposure in an ETF wrapper. This fund tracks the Russell Midcap Index, which is made up of over 800 mid-sized U.S. stocks.
Over the past decade, IWR has delivered exceptional returns, gaining 9.67% total returns over 10 years.
funds, FLMVX provides an experienced manager approach. Regarding returns, FLMVX has gained 8.49% in the last 10 years. Their expense ratio is somewhat higher than some of the other funds in this list at 0.75%.
What is a Mid-Cap Index?
A mid-cap index is a stock market index made up of mid-sized companies, which are usually defined as those with market capitalizations between $2 billion and $10 billion. This is compared to:
- Small-cap: $250 million to $2 billion
- Large-cap: $10 billion to $200 billion
- Mega-cap: $200 billion-plus
Mid-cap indexes include between 400 and 800 stocks.
Benefits of Investing in Mid-Cap Index Funds
Investors can gain several advantages by investing in mid-cap index funds, including the following.
Growth Potential
Mid-caps offer greater growth opportunities than larger companies but more stability than small-caps. Mid-cap earnings are projected to rise faster than large-caps.
Diversification
Mid-cap funds provide exposure to hundreds of mid-sized companies across sectors, which can help you mitigate risk by diversifying your portfolio.
Long-Term Returns
Mid-caps have historically delivered attractive long-term returns, in some cases even exceeding large-caps.
No Active Management Needed
Index funds provide low-cost exposure without high fees charged by actively managed funds.
Risks of Investing in Mid-Cap Index Funds
No investment strategy is without risks, and mid-cap index funds have their fair share.
Volatility
Mid-caps can carry higher volatility than large-caps since they’re less established companies. Volatility refers to how the stock prices rise and fall more frequently.
Periods of Underperformance
Underperformance goes hand-in-hand with volatility. It’s the nature of mid-caps that they sometimes underperform large-caps for extended periods.
Vulnerable to Downturns
Mid-caps tend to be more heavily affected by market declines than large-cap and mega-cap companies.
Where to Invest in Mid-Cap Index Funds
A few excellent options exist for opening an account to invest in mid-cap index funds.
Key Factors to Consider When Choosing Mid-Cap Index Funds
Now that you’re familiar with mid-cap index funds and their potential strategic benefits, here are some factors you should consider when selecting funds.
Fund Size and Liquidity
Bigger funds tend to have lower expenses because their costs are spread across more investors. Large funds also trade more, which means it’s easier to buy and sell shares.
Expense Ratio and Fees
Lower fees are crucial because they directly come out of your returns. Even small fee differences added up over decades. Index funds also have lower fees compared to actively managed funds.
Assets Under Management
Funds with more assets can invest in more companies, allowing for better diversification. Their large size also allows economies of scale to reduce costs.
Track Record
Look for funds with at least a 10-year history of strong returns. This metric helps show that the fund can perform well over extended periods, but past performance is no guarantee of future success.
Tracking Error
Tracking error refers to how closely an index fund follows the index it’s designed to track. Index funds should match their benchmark index. Funds with low tracking errors accurately replicate the index.
The Mid-Cap Sweet Spot for Long-Term Growth
Mid-cap index funds represent a compelling option for investors seeking excellent long-term growth fund potential while maintaining some level of stability. Compared to small-caps, mid-caps can benefit from greater liquidity, resources and footing in their markets.
For investors with longer time horizons, mid-caps could deserve a strategic allocation for their ability to deliver standout returns over the long run.
Frequently Asked Questions
How many funds does the Fidelity mid-cap index sponsor?
The Fidelity mid-cap index fund includes 817 holdings across various market sectors. It primarily comprises domestic equities in the industrial, financial and IT verticals.
Should I do mid-cap fund or extended-market index fund?
Mid-cap funds specifically target mid-sized companies, while extended-market funds capture small- and mid-caps. Mid-cap funds offer more focused exposure, so the type you invest in depends on your goals and strategy.
Does Vanguard have a mid-cap growth index fund?
Yes. Vanguard offers a mid-cap growth index fund called the Vanguard Mid-Cap Growth Index Fund Admiral Shares (VMGMX).
About Sarah Edwards
Sarah Edwards is a finance writer passionate about helping people learn more about what’s needed to achieve their financial goals. She has nearly a decade of writing experience focused on budgeting, investment strategies, retirement and industry trends. Her work has been published on NerdWallet and FinImpact.