As of Sept. 7, the S&P 500 is higher by 17.2% year-to-date while the S&P MidCap 400 and S&P SmallCap 600 indexes are up 7.2% and 4.1%, respectively. That is to say smaller stocks aren’t turning in dreadful performances, but they are lagging large-caps by substantial margins.
Performances like those could compel investors to lean more heavily into larger equities while glossing over mid-cap stocks – a fate that often befalls that asset class. However, some experts argue that now isn’t the time to abandon mid-cap stocks and ETFs. After all, this is a $2.4 trillion corner of the market, but one that rarely generates commensurate attention. Plus, mid-caps are easy to access and there’s value in doing so in index fund/ETF form.
“Market-cap weighting harnesses the market’s collective wisdom on the relative value of each stock, limiting turnover and the associated transaction costs,” noted Morningstar analyst Mo’ath Almahasneh. “These index providers also implement buffers to limit deletions and additions along the lower market-cap bound, further reducing turnover. Funds tracking such indexes have an average turnover of only 15% over the past 10 calendar years, which was 52 percentage points lower than their average category peer.”
Notable is the fact that mid-caps, over lengthy holding periods, have outperformed both large- and small-caps. Alone, that could be a reason to evaluate some of the following mid-cap ETFs.
SPDR Portfolio S&P 400 Mid Cap ETF (SPMD)
The SPDR Portfolio S&P 400 Mid Cap ETF (SPMD) tracks the aforementioned S&P MidCap 400 Index, meaning it’s a mid-cap blend fund, providing exposure to both growth and value stocks. In other words, SPMD is a mid-cap core fund and that’s appealing for many advisors and investors.
“Plus, this broader coverage across the capitalization spectrum has historically improved returns without a discernible increase in volatility,” notes State Street’s Matthew Bartolini. “On a risk-adjusted basis across all styles, mid caps’ Sharpe and Sortino ratios were better than small caps’ ratios (considering 17.69% standard deviation for mid caps versus 19.12% for small caps). In the core, mid caps had similar Sharpe and Sortino ratios to large caps, with higher ratios for value.”
Adding to the allure of SPMD, State Street Global Advisors (SSGA) last month pared the fee on the fund to 0.03%, making it one of the least expensive mid-cap ETFs on the market.
Calvert US-Mid Cap Core Responsible Index ETF (CVMC)
The Calvert US-Mid Cap Core Responsible Index ETF (CVMC) is a new entrant to the mid-cap ETF fray, having debuted in January. It’s also one of a small number of funds in this category emphasizing environmental, social and governance (ESG) virtues.
While CVMC is a rookie mid-cap ETF, its ESG traits could support an argument for an elevated quality profile – one that’s appealing to long-term investors. Speaking of long-term, it is hard to ignore mid-caps’ track record on that front.
“Most people don’t know that midcap stocks have outperformed the more talked about small-cap stocks over the last five years, ten years, and since 1994. In fact, despite underperforming large-cap stocks, as defined by the S&P 500, over the previous five and ten years, midcap stocks have outperformed them over the long term!,” reported Bill Stone for Forbes.
American Century Mid Cap Growth Impact ETF (MID)
Like the aforementioned CVMC, the American Century Mid Cap Growth Impact ETF (MID) has a responsible investing mandate. The difference is MID is a mid-cap growth fund as it attempts to best Russell 1000 Mid-Cap Growth Index.
MID’s growth profile could drive long-term out-performance because while occasionally volatile, mid-cap growth stocks represent a compelling asset class for patient investors.
“Looking at annual total return from 2009, mid caps similarly outperformed over four out of the five years after the global financial crisis,” noted Dina Ting, head of global index portfolio management at Franklin Templeton. "Not only did they also perform well compared to the small-cap segment post-recession, but the cumulative returns from the start of 2000 through December 2022 show the Russell Midcap Index far outpaced the large-cap Russell 1000 Index with returns of 598% versus 334%."
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Todd Shriber
Todd Shriber got his start in financial markets as a reporter with Bloomberg News. Later, he became a trader at a Southern California-based long/short hedge fund where he specialized in trading sector and international ETFs leading up to and during the financial crisis. He would later become the web editor at ETF Trends. Currently, he analyzes, researches and writes on ETFs for a variety of Web-based publications and financial services firms.Shriber has been quoted in the Barron's, CNBC.com and the Wall Street Journal. His work has been published on Web sites such as Benzinga, ETF Daily News, ETF Trends, MarketWatch, Fox Business and Nasdaq.com.
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