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3 Mid-Cap ETFs For An Overlooked Asset Class

September 12, 2019 12:24 pm
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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.”

SPDR S&P MIDCAP 400 ETF

One of the original, mid-cap ETFs, the SPDR S&P MIDCAP 400 ETF (NYSE: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.

SPDR S&P MIDCAP Value ETF

The SPDR S&P 400 Mid Cap Value ETF (NYSE: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.

SPDR S&P MIDCAP Growth ETF

The SPD S&P MidCap Growth ETF (NYSE: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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