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Mid-Cap Growth ETFs for a Roller-Coaster Market


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After a prolonged calm period, volatility roared back into the market with the sharp rise in Treasury yields, which led to the bloodbath in the stock market this week. This pushed the major indices into the red territory for the year and in the correction zone from the latest peak (read: How to Hedge Volatility With ETFs ).

The initial nervousness came last Friday, when January jobs reports showed the fastest pace of wage growth in more than eight years. This has triggered fears of inflation that might force the Fed to adopt speedy rate hikes. Notably, higher-than-expected rates will lead to a rise in borrowing costs that might dampen the attractiveness for the riskier assets. Apart from these, Washington turmoil, geopolitical tension and lofty valuations are weighing on the stocks.

However, the bullish sentiment for U.S. stocks remains intact given accelerating global economic growth, euphoria surrounding the new tax legislation and strong corporate earnings. The massive $1.5-trillion tax cuts will create an economic surge, boosting job growth and earnings of corporates. It will further result in reflation trade. Additionally, growth in the U.S. economy has been solid, buoyed by an impressive labor market, higher wages, increasing consumer spending and high consumer confidence.

In such a scenario, investors seeking to capitalize on the strong fundamentals, but worried about uncertainty, should consider mid-cap stocks in the basket form (read: 6 Ways to Build a Rate-Proof Portfolio With ETFs ).

Why Mid Caps?

While large companies are normally known for stability and the smaller ones for growth, mid caps offer the best of both the worlds, allowing growth and stability in portfolios simultaneously. These middle-of-road securities are arguably safer and have the potential to move higher in turbulent times, especially if political issues or financial instability creeps into the picture.

Further, honing in on growth securities in this capitalization level allows investors to earn more returns. This is because growth stocks refer to those high-quality stocks that are likely to witness revenues and earnings increase at a faster rate than the industry average. These stocks harness their momentum in earnings to create a positive bias in the market, resulting in rocketing share prices.

While there are several ETFs available in the space, we have highlighted five that have a Zacks ETF Rank #1 (Strong Buy) or 2 (Buy), suggesting outperformance in the months ahead. These have potentially superior weighting methodologies that could allow these to lead the mid-cap space in the months ahead. Additionally, these funds are popular and liquid enough, making compelling choices for investors seeking a nice momentum play with lower risk (see: all the Mid Cap ETFs here ):

iShares Russell Mid-Cap Growth ETF IWP

With AUM of $8.4 billion, this ETF offers diversified exposure to the mid-cap growth segment by tracking the Russell MidCap Growth Index. It holds 421 securities in its basket with none accounting for more than 1.16% of total assets. It has key holdings in information technology, consumer discretionary, industrials and healthcare that account for double-digit exposure each. It charges 25 bps in annual fees and trades in average daily volume of 289,000 shares. The product has a Zacks ETF Rank #1.

Vanguard Mid-Cap Growth ETF VO T)

This fund tracks the CRSP US Mid Cap Growth Index. Holding 156 securities in its basket, it is highly diversified across each component with none holding more than 1.5% share. In terms of sector exposure, industrials occupies the top position at 25.4%, followed by financials (19.9%), technology (19.5%), healthcare (11.7%) and consumer services (10.2%). The product has managed nearly $5.1 billion in its asset base and trades in good volumes of around 115,000 shares. Expense ratio comes in at 0.07%. VOT has a Zacks ETF Rank #2.     

iShares S&P Mid-Cap 400 Growth ETF IJK

This product offers exposure to 240 mid-cap stocks whose earnings are expected to grow at an above-average rate relative to the market. It follows the S&P MidCap 400 Growth Index, charging investors 25 bps in annual fees. The ETF is widely spread out across components with none of the securities holding more than 1.39% of assets. However, it is slightly skewed toward the information technology sector at 24.5% while financials, industrials, consumer discretionary, and healthcare receive a double-digit exposure each. IJK has amassed $7.8 billion in its asset base while trades in average daily volume of nearly 134,000 shares. It has a Zacks ETF Rank #2 (read: 6 ETFs for a Historically Soft February ).

SPDR S&P 400 Mid Cap Growth ETF MDYG

This ETF follows the S&P Mid Cap 400 Growth Index, holding 240 stocks in its basket. It is widely diversified across components with each accounting for less than 1.4% share. Information technology is the top sector with 24.5% of assets, while financials, industrials, consumer discretionary, and healthcare also receive a double-digit exposure each. MDYG has over $1 billion in AUM and trades in moderate volume of around 70,000 shares a day on average. It charges 15 bps in annual fees and has a Zacks ETF Rank #2.

Vanguard S&P Mid-Cap 400 Growth ETF IVOG

This ETF tracks the S&P MidCap 400 Pure Growth Index, charging investors 20 bps in fees per year. It has amassed $769.7 million in its asset base while sees a light volume of about 34,000 shares. The fund holds 241 stocks with a well-diversified portfolio as each firm holds no more than 1.3% of total assets. However, it is skewed toward information technology with one-fourth share while industrials, financials, consumer discretionary and healthcare round of the top five. The ETF has a Zacks ETF Rank #2.

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VIPERS-MID CAP (VO): ETF Research Reports

SPDR-SP4 MC GR (MDYG): ETF Research Reports

ISHARS-RS M GR (IWP): ETF Research Reports

ISHARS-SP MC GR (IJK): ETF Research Reports

VANGD-SP4 GRWTH (IVOG): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , ETFs
Referenced Symbols: VO , MDYG , IWP , IJK , IVOG



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