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Is it the Right Time to Invest in Mid-Cap ETFs? Let's Explore

The equity investing world is currently seeing a lot of turbulences, which is making investors anxious. In the current scenario, a mid-cap investment strategy can come in handy. Investment in mid-cap funds is often recognized as a good portfolio diversification strategy. These funds combine attractive attributes of both small and large-cap ETFs. While large companies are normally known for stability and the smaller ones for growth, mid-caps offer the best of both worlds.

The rapidly spreading coronavirus outbreak seems to have unnerved market participants as the recorded number of cases has reached at least 38 million, with a death toll of around 1.08 million globally, per a CNN report. United States, India and Brazil together account for the large part of COVID-19 cases in the world. However, cases have started to reportedly surge in Europe as well. Investors are apprehensive about another round of business restrictions and lockdown measures might derail the economic recovery achieved so far.

Meanwhile, making the situations worse, major players in the race to develop coronavirus vaccine and antibodies development have announced the pausing of trials. Looking at the situation, it looks like another round of stimulus will be absolutely necessary for helping the economy amid this health crisis. However, the hopes for another round of fiscal stimulus have been dampened by President Trump’s tweet of “STIMULUS! Go big or go home!!!” made on Oct 13, per a Yahoo Finance article. Going on, the latest comment by Steven Mnuchin, the U.S. Treasury Secretary, that the likelihood of finalizing a stimulus deal before the Nov 3 elections is dim has disappointed investors, per a Reuters article (read: ETFs to Gain Despite Stalled Stimulus Talks).

Factors Instilling Optimism

In the current situation, despite the lack of a second round of stimulus package amid an aggravating coronavirus outbreak, the U.S. economy is still growing, though at a slow pace.

The U.S. economy is moving toward record growth in the third quarter after a historic slump in the April-June period. In its latest forecast on Sep 25, the Atlanta Fed estimated 32% growth for third-quarter U.S. GDP. The economy contracted 31.4% in the second quarter, marking the steepest decline since the government started keeping records in 1947.

Moreover, the job market continues to improve. Going by the U.S. Bureau of Labor Statistics, unemployment rate dropped 0.5% to 7.9% in September, the lowest amid the coronavirus pandemic. Jobless rate not only declined more than expected but fell for the fifth consecutive month. It’s worth mentioning here that the rate touched 14.7% in April, when the pandemic had peaked before subsiding.

The super-dovish Fed is long-term positive over the stock market. On Sep 16, Fed Chairman Jerome Powell reiterated that the benchmark interest rate will stay zero or near zero, at least up to 2023. A low interest rate will bring down the cost of capital for businesses and consumers will have a lesser propensity to save due to a low deposit rate. Thus, higher spending by businesses and consumers is likely to boost the overall economy and raise stock prices.

Mid-Cap ETFs in Focus

As such, investors seeking to capitalize on the strong fundamentals but worried about uncertainty should consider mid-cap ETFs. Below, we have presented five popular mid-cap ETFs:

Vanguard Mid-Cap ETF VO

The fund seeks to track the performance of the CRSP US Mid Cap Index, which measures the investment return of mid-capitalization stocks. With a basket of 347 holdings, it has AUM of $34.21 billion. It charges a fee of 4 basis points (see: all the Mid Cap ETFs here).

SPDR S&P MIDCAP 400 ETF Trust MDY

The fund seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P MidCap 400 Index. With a basket of 400 holdings, it has AUM of $14.34 billion. It charges a fee of 23 basis points (read: Fed Goes the Extra Mile: 6 ETF Areas to Win).

iShares Russell Mid-Cap Value ETF IWS

The fund provides exposure to mid-sized U.S. companies that are thought to be undervalued by the market relative to comparable companies and tracks the Russell MidCap Value Index. With a basket of 695 holdings, it has AUM of $9.71 billion. It charges a fee of 24 basis points.

Vanguard Mid-Cap Growth ETF VOT

The fund seeks to track the performance of the CRSP US Mid Cap Growth Index, which measures the investment return of mid-capitalization growth stocks. With a basket of 157 holdings, it has AUM of $8.29 billion. It charges a fee of 7 basis points.

Schwab U.S. Mid-Cap ETF SCHM

The fund’s goal is to track as closely as possible, before fees and expenses, the total return of the Dow Jones U.S. Mid-Cap Total Stock Market Index. With a basket of 507 holdings, it has AUM of $6.41 billion. It charges a fee of 4 basis points.

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iShares Russell MidCap Value ETF (IWS): ETF Research Reports
 
SPDR SP MidCap 400 ETF (MDY): ETF Research Reports
 
Schwab U.S. MidCap ETF (SCHM): ETF Research Reports
 
Vanguard MidCap Growth ETF (VOT): ETF Research Reports
 
Vanguard MidCap ETF (VO): 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.

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