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Mid Cap ETFs Leading the Broad Rally - ETF News And Commentary

Posted
3/5/2014 2:00:00 PM
By: Zacks.com
Referenced Stocks:EZM;JKI;RFG

Despite the slow start to 2014, the broad U.S. markets regained momentum of late and are hovering around their multi-year high. This is primarily attributable to strong corporate earnings, rising merger and acquisition activities and some reassuring data (read: Merger Arbitrage ETFs in Focus on Rising Deal Volume ).

Some concerns over the political and financial stability in some emerging markets led to a brief pause in the rally early this month but it appears that the bullish trend for the stocks will remain intact at least in the near term. This is especially true as the tension in Ukraine has eased and the hunger for riskier investments has resurfaced (read: 3 Energy ETFs to Buy on the Ukraine Crisis ).

Investors looking to participate in this broad rally could look at mid-cap ETFs as these are leading the market higher and mostly gaining near double digits over the trailing one-month period. Mid-cap stocks generally offer the best of both worlds, allowing growth and stability in portfolios.

In fact, these securities are safer options and have the potential to move higher than the large and small cap counterparts in turbulent times. While there are several ETFs available in the space, we have highlighted three ETFs that might not be very popular and liquid choices but have performed remarkably well. These have a Zacks Rank of '1' or '2', suggesting further outperformance in the months ahead.

Any of these could be a compelling choice for investors seeking a nice momentum play with lower risk (see: all the Mid Cap ETFs here ):

Guggenheim S&P MidCap 400 Pure Growth ETF ( RFG )

This ETF provides targeted exposure to the growth segment of the U.S. mid-cap space by tracking the S&P MidCap 400 Pure Growth Index. In total, the fund holds 94 stocks, which are widely spread across number of securities. Each firm holds less than 2.9% of total assets.   

However, the fund is slightly skewed toward industrials at nearly 22%, closely followed by consumer discretionary (18.72%) and financials (18.40). The product has amassed $835.3 million in its asset base while volume is light. The ETF charges 35 bps in annual fees from investors.

RFG added about 10% over the past month and has a Zacks ETF Rank of 2 or 'Buy' rating with a 'Medium' risk outlook.

iShares Morningstar Mid-Cap Value ETF ( JKI )

This ETF offers exposure to the mid-cap value sector of the U.S. equity market, by tracking the Morningstar Mid Value Index. The fund is often overlooked by investors as it has AUM of only $173.4 million and trades in volume of less than 10,0000 shares per day. Expense ratio came in at 0.30% (read: 3 Top Ranked Mid Cap Value ETFs in Focus ).

Holding 198 stocks in its basket, the fund provides a nice balance across each security with none holding more than 1.65% share. In terms of sectors, financials take the top spot at roughly one-fourth of the total while industrials, utilities and consumer goods account for double-digit exposure.

The ETF returned over 8.6% over the past one month and has a Zacks ETF Rank of 1 or 'Strong Buy' rating with a 'Low' risk outlook.

WisdomTree MidCap Earnings Fund ( EZM )

For a slight 'active' choice, investors could consider EZM for quality exposure. The ETF follows the WisdomTree MidCap Earnings Index, which measures the performance of the stocks that generate earnings in the mid-cap universe. This results in a robust portfolio of 609 stocks, giving investors wide exposure across the cap level as no single company accounts for more than 1.3% of assets.

From a sector look, financials and industrials account for the largest share of 23.26% and 20.19%, respectively. Consumer discretionary and information technology receive double-digit allocations as well. The product has managed assets of about $481.6 million so far while sees light volume.

The fund charges 38 bps in fees per year from investors and was up over 9% in the past month. EZM has a Zacks ETF Rank of 2 or 'Buy' rating with a 'Low' risk outlook (read: Buy these ETFs to Profit from the Earnings Season ).

Bottom Line

While it is true that small caps have also been soaring and are approaching their all-time highs, mid-cap funds are currently outperforming and are arguably better plays. This is because the mid-cap space has been a solid performer relative to other cap level funds in the year-to-date time frame and over the long term.

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WISDMTR-MC ERN (EZM): ETF Research Reports

ISHARS-MO MC VL (JKI): ETF Research Reports

GUGG-SP 400 PG (RFG): ETF Research Reports

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