Mid-cap value ETFs are ideal for investors seeking equity
appreciation with a lower level of risk. This is especially true in
the dividend ETF world, as many top income funds have seen huge
inflows in the recent past amid rock-bottom interest rates.
Although interest rates over the past few months increased on
market speculations about the Fed's Taper decision, the surprising
'Taper Hold' announcement on September 18
will again pull interest rates down. Anticipating a lower interest
rate environment in the near term, we foresee investments in
dividend paying equities as enticing options.
Further, with the macro environment in disarray, many companies are
presently avoiding extensive capital investments and are instead
returning extra cash to investors through dividends and share
Mid Cap ETFs Leading the Market in 2013
Coming to capitalization, past records show that relatively smaller
companies bounce back in a bull market faster than the larger ones.
Hence, with the Fed's 'Zero Taper' triggered the stock market
rally, we might see an upturn in mid-and-small companies in the
In the spectrum of small-mid-large caps, mid-cap ETFs are often
ignored more than their small or large-cap counterparts, both of
which have managed to establish a stronger asset base.
While large companies are normally known for stability and the
smaller ones for growth, mid caps are arguably safer options for
considerable growth, with less risk than their small-cap
3 Top Ranked Mid Cap ETFs to Buy Now
Naturally, investor focus has shifted toward mid-caps which have
picked up momentum on the ongoing bullish market sentiment. In
fact, all funds in the mid-cap value equities space such as the
iShares Russell Midcap Value Index Fund
iShares S&P MidCap 400 Value Index Fund
WisdomTree MidCap Dividend Fund
) carved out smart gains of over 20% on a year-to-date basis.
Given this bullish trend, a look at some of the top ranked ETFs in
the space could be a good way to target the best of the segment. In
order to do this, investors can look at the Zacks ETF Rank and find
the top mid-cap value ETF.
About the Zacks ETF Rank
The Zacks ETF Rank provides a recommendation for the ETF in the
context of our outlook for the underlying industry, sector, style
box or asset class (Read:
Zacks ETF Rank Guide
). Our proprietary methodology also takes into account the risk
preferences of investors. ETFs are ranked on a scale of 1 (Strong
Buy) to 5 (Strong Sell) while they also receive one of three risk
ratings, namely Low, Medium or High.
The aim of our models is to select the best ETFs within each risk
category. We assign each ETF one of the five ranks within each risk
bucket. Thus, the Zacks ETF Rank reflects the expected return of an
ETF relative to other products with a similar level of risk.
For investors seeking to apply this methodology to their portfolio
in the mid-cap value space, we have taken a closer look at the top
ranked DON. This ETF has a Zacks ETF Rank of 1 or 'Strong Buy' (see
the full list of
) and is detailed below:
DON in Focus
Launched in June 2006, the WisdomTree Mid-Cap Dividend fund seeks
to provide exposure to the performance of WisdomTree MidCap
Dividend Index (read
Mid Cap ETF Investing 101
). The Index includes companies that make the top 75% of the market
capitalization of the WisdomTree Dividend Index after removing the
300 largest companies.
The fund is modestly popular in the mid-cap value space with more
than $787 million in assets. The fund trades in volumes of about
75,000 a day.
The choice is not very expensive as it charges 38 basis points in
fees a year which is slightly higher than the average expense ratio
in the mid-cap value space. Relatively light trading volume led to
slightly higher expenses.
In terms of sector exposure, financials (23.6%) and consumer
discretionary (18.5%) get considerable allocation in the fund,
while utilities (15.8%) and industrials (13.2%) round out the top
four. Stocks are also well diversified from an individual holding
perspective, thus minimizing company-specific risks, as no single
company makes up more than 2.11% of assets (see
Create a Diversified Portfolio Using ETFs
In fact, we have a 'Low' risk outlook for DON for the near term.
However, low risk does not necessarily mean low returns. The
product also paid an annual dividend yield of 3.24% on September
23, 2013, the highest among the all funds in the mid-cap value
Since third-quarter 2012, investors' appetite returned to riskier
assets, leading to a dream run for mid and small-caps funds. DON
has returned around a handsome amount of 24.2% in the last one year
ended June 30, 2013. DON hit a low of $54.06 and is currently
trading around its 52 week high, giving the fund a return of
roughly 23.5% in the last one year period.
Based on our research, mid-cap ETFs need a closer look now. As far
as DON is concerned, it is nice combo of high dividend yield and
the potential to give investors an above-average market return.
Also, DON could be a winner thanks to its high exposure to the
financial sector - the star performer last earnings season - and
consumer discretionary, which is likely to rebound nicely from a
dip, meaning this could definitely be an ETF worth a closer look in
the tail end of the year.
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WISDMTR-MC DIV (DON): ETF Research Reports
ISHARS-SP MC VL (IJJ): ETF Research Reports
ISHARS-RS M VL (IWS): ETF Research Reports
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