Thanks to an improving economy, decent earnings growth and
easy monetary policy, the U.S. markets are flying higher with the
Dow and the S&P 500 finally breaking the 16,000 and 1,800
milestones, respectively. China's new economic reform plans
further supported the broad rally (read:
China ETFs Jump on Government Reform
WISDMTR-MC ERN (EZM): ETF Research Reports
ISHARS-MO MC VL (JKI): ETF Research Reports
PWRSH-F P MD VL (PXMV): ETF Research Reports
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However, some concerns have started to build over the recent
surge and some market analysts have been warning about the
possibility of a correction in the coming weeks. This could
happen, as valuations appear a bit rich at current levels and
earnings growth seems to be driven by cost cutting rather than
This brings volatility back into the market, compelling investors
to look for both growth and stability at the same time in their
portfolio. This can easily be achieved by investing in the often
overlooked mid cap ETFs that offers the best of both worlds.
While small caps are leading the market higher, mid caps are
arguably safer options for substantial growth with lower risk and
outperforming large cap cousins. In addition, mid caps could be
better positioned if political issues like another government
shutdown, debt debacle or Fed tapering creep into the picture
3 Small Cap Sector ETFs Leading the Market
Furthermore, by honing in on value stocks in this capitalization
level, more safety can be assured to investors. The mid cap value
funds offer exposure to a wide variety of stocks with value
characteristics, such as low P/B, low P/S and low P/E ratios,
which reduce company-specific risks.
Further, according to various academic studies, value stocks have
outperformed the growth ones over the long term and delivered
higher returns with lower volatility (read:
3 Ultra Cheap ETFs for Value Investors
Given this, investors may want to consider cycling into mid cap
value space in order to obtain a nice momentum play to close out
the year. While looking at individual companies is certainly an
option, a focus on top ranked mid cap value ETFs could be a less
risky way to tap into the same broad trends.
Top Ranked Mid Cap Value ETF in Focus
We have found a number of ETFs that have the top Zacks ETF Rank
of 1 or 'Strong Buy' rating in the mid cap value space and are
thus expected to outperform in the months to come (read: all the
While all these top ranked ETFs are likely to outperform, the
following three funds could be good choices to tap into the
space. This trio has enjoyed a strong momentum in the
year-to-date period, and has potentially superior weighting
methodologies which could allow it to continue leading the mid
cap value space in the months ahead.
iShares Morningstar Mid-Cap Value ETF (
This underappreciated ETF offers exposure to the mid cap value
sector of the U.S. equity market, by tracking the Morningstar Mid
Value Index. Holding 196 stocks in its basket, the fund provides
a nice balance across each security and prevents heavy
concentration. None of the securities holds more than 1.51% of
assets. In terms of sectors, financials take the top spot at
roughly one-fourth of the total, followed by industrials (13.50%)
and utilities (12.37%).
The product has amassed $156.9 million in its asset base while
volume is light, suggesting that bid/ask spreads are relatively
wide and that total cost will come in much higher than the 30 bps
expense ratio. The ETF returned nearly 38% so far this year.
PowerShares Fundamental Pure Mid Value Fund (
This fund follows the RAFI Fundamental Mid Value Index and holds
a large basket of 237 securities in its portfolio. PXMV looks
unpopular with AUM of less than $39 million while trades in small
volumes. Expense ratio came in at 0.39% (read:
Top Ranked Mid Cap ETF in Focus: PXMV
Like JKI, the product is widely spread out across each sector and
security, as each security makes up for less than 1.3% of total
assets. From a sector perspective, financials occupy the top
position at 22.05% while consumer discretionary, industrials and
information technology round off to the next three spots. The ETF
added about 36% in the year-to-date time frame.
WisdomTree MidCap Earnings Fund (
For a slight 'active' choice, investors could consider EZM for
quality exposure. The ETF tracks the WisdomTree MidCap Earnings
Index, which measures the performance of the stocks that generate
earnings in the mid cap universe. This result in a robust
portfolio of 607 stocks, giving investors wide exposure across
the cap level (see:
the Mid Cap ETFs here
The fund does a great job of spreading out assets across
individual securities as no one company accounts for more than
1.6% of assets. From a sector look, financials and industrials
account for the largest share of 21.58% and 20.25%, respectively.
Consumer discretionary and information technology receive
double-digit allocations as well.
The product has managed assets about $391 million so far in the
year while sees moderate volume. The fund charges 38 bps in fees
per year from investors and is up over 35% year-to-date.
To sum up, mid cap value funds offer higher returns with low risk
amid volatile markets. Given this, investors shouldn't forget the
mid cap space and should take a closer look at a few of the top
ranked ETFs in this sector for excellent exposure and some more
outperformance in the months ahead.
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