Mid-Cap ETFs Outperforming to Start June
Wall Street staged a nice comeback this month after a frightful May. Hopes of monetary easing policy by the Federal Reserve re-ignited the appeal for riskier assets, leading to a strong jump in stocks. The Fed has hinted toward interest rate cut if needed, depending on the implications of the trade tensions on the economy.
The latest round of domestic economic data suggests that economic growth is cooling in recent month. This spurred speculations about interest rate cuts. In particular, the U.S. economy added 75,000 jobs in May, marking the second time in four months that job growth was less than 1,00,000. Wage growth rate also slowed down last month. The ISM’s manufacturing PMI in May fell to the lowest level since 2016 while IHS Markit US manufacturing PMI fared even worse, declining to levels not seen for a decade (read: ETF Winners & Losers of Last Week).
Additionally, the U.S.-Mexico deal on migration and a slew of mergers and acquisitions added to the strength. However, worsening trade relationship between the United States and China as well as global growth concerns continued to weigh on the stocks. Trump will hit China with additional tariff on at least $300 billion of goods if the deal is not reached later this month at the Group of 20 summit in Japan and further add to the trade tensions.
In such a scenario, investors seeking to capitalize on strong fundamentals but worried about trade war should consider mid-cap stocks in the basket form. Notably, the ultra-popular large-cap ETF (SPY) has gained 4.9% since the start of June while small-cap ETF (IWM) added 3.7%. Mid-cap ETF (IJH) outperformed, having gained 5.2% in the same timeframe.
While large companies are normally known for stability and the smaller ones for growth, mid-caps offer the best of both worlds, allowing growth and stability in portfolios simultaneously. Additionally, these middle-of-road securities have relatively less exposure to international markets compared to large caps, thereby making them good bets in the current market turmoil. Further, mid-cap stocks are less volatile than small caps. Thus, these stocks are currently a safer option and have higher upside potential (read: Dow Sees Best Week Since November: ETFs in Focus).
While there are several ETFs available in the space, we have highlighted five that are outperforming at the start of June and have a strong Zacks ETF Rank #1 (Strong Buy) or 2 (Buy) with a Medium risk outlook, 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.
iShares Russell Mid-Cap Growth ETF IWP
With AUM of $10.8 billion, this ETF tracks the Russell MidCap Growth Index. It holds 417 securities in its basket with none accounting for more than 1.52% of the total assets. It has key holdings in information technology, making up for 32.9% exposure while consumer discretionary, industrials and health care round off the next three spots. It charges 25 bps in annual fees and trades in average daily volume of 612,000 shares. The product has a Zacks ETF Rank #1.
SPDR S&P 400 Mid Cap Growth ETF MDYG
This ETF follows the S&P Mid Cap 400 Growth Index, holding 243 stocks in its basket. It is widely diversified across components with each accounting for less than 1.5% share. Information technology is the top sector with 20.2% of the assets, while healthcare, industrials, consumer discretionary and real estate also receive a double-digit exposure each. MDYG has $1.6 billion in AUM and trades in volume of around 180,000 shares a day on average. It charges 15 bps in annual fees and has a Zacks ETF Rank #2 (read: Market Rallies: High-Beta & Momentum ETFs to Buy).
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 $745.1 million in its asset base while seeing a volume of about 16,000 shares per day on average. The fund holds 243 stocks with a well-diversified portfolio as each firm holds no more than 1.3% of total assets. Information technology is the top sector with 21.3% share while healthcare, industrials, consumer discretionary and real estate round of the top five. The product has a Zacks ETF Rank #2.
iShares S&P Mid-Cap 400 Growth ETF IJK
This product offers exposure to 243 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 1.5% of the assets. It is slightly skewed toward information technology sector at 20.1% while healthcare, industrials, consumer discretionary, real estate and financials receive a double-digit exposure each. IJK has amassed $7.6 billion in its asset base while trading in average daily volume of 133,000 shares. It has a Zacks ETF Rank #2.
iShares Morningstar Mid-Cap Growth ETF JKH
With AUM of $542.2 million, this product tracks the Morningstar Mid Growth Index and holds 197 securities, with each accounting for less than 1.7% of the assets. Information technology takes the largest share at 29.7% while health care, industrials and consumer discretionary also receive double-digit exposure each. The ETF charges 30 bps in annual fees and trades in volume of about 14,000 shares a day. It has a Zacks ETF Rank #1 (see: all the Mid Cap ETFs here).
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iShares Russell Mid-Cap Growth ETF (IWP): ETF Research Reports
SPDR S&P 400 Mid Cap Growth ETF (MDYG): ETF Research Reports
Vanguard S&P Mid-Cap 400 Growth ETF (IVOG): ETF Research Reports
iShares S&P Mid-Cap 400 Growth ETF (IJK): ETF Research Reports
iShares Morningstar Mid-Cap Growth ETF (JKH): ETF Research Reports
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