3 Mid-Cap ETFs For An Overlooked Asset Class

Mid-cap stocks and exchange traded funds have long histories of outperforming their large- and small-cap counterparts. Mid caps also have lengthy histories of being ignored. In fact, it's safe to say advisors and investors are woefully under-allocated to stocks in the middle.

“Only $782 billion is invested in pure mid-cap strategies, compared with $6.7 trillion in large caps and $825 billion in small caps,” according to State Street. “Yet, mid caps have historically offered greater growth potential than large caps and less volatility than small caps.”


One of the original, mid-cap ETFs, the SPDR S&P MIDCAP 400 ETF MDY tracks the S&P MidCap 400 Index, featuring companies in the $1 billion to $8 billion market capitalization range. MDY has $19.19 billion in assets under management and allocates about 47% of its weight to financial services, industrial and technology stocks. Data suggest MDY is home to a lot of hidden gems.

“Neither the fundamental Wall Street analysts nor the academic quantitative investors pay attention to mid caps. Fundamental analysts focus on well-known firms with heavy media coverage and high-profile earnings reports. In fact, twice as many analysts, on average, cover large-cap stocks as cover mid-cap stocks,” according to State Street.


The SPDR S&P 400 Mid Cap Value ETF MDYV merits some consideration right now because of signs the value factor is on the mend. The fund's nearly 300 components have market caps ranging from $1.6 billion to $6.8 billion.

MDYV's underlying index, the S&P MidCap 400 Value Index “includes stocks exhibiting the strongest value characteristics based on: book value to price ratio; earnings to price ratio; and sales to price ratio,” according to State Street.


The SPD S&P MidCap Growth ETF MDYG checks the boxes investors look for with the growth factor without much of the earning variability and volatility associated with small-cap growth funds.

“Mid caps have had a 7% higher growth rate than large caps, with 32% less earnings volatility than small caps. In fact — and perhaps speaking to some of the leverage efficiency (return on assets, total-debt-to-assets) metrics — the volatility of mid caps’ earnings growth rates has been lower than that of large caps, on average,” according to State Street.

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