Middle-capitalization stocks are outperforming this year, and investors can also target the mid-cap segment through related exchange traded funds.
The middle capitalization category has also outperformed, with the S&P 400, a benchmark for mid-cap companies across the U.S., up 5.9% this year, compared to the 2.5% increase in the S&P 500 and 0.5% gain in the Russel 2000.
“Mid-cap stocks have been in the sweet spot of risk-adjusted performance since 1926,” according to Morningstar analyst Michael Rawson. “Although they historically have had a higher return than large caps, they have also had a higher volatility and a higher beta, or more procyclical movement with the market. But the higher return has compensated investors for the increased risk. While small caps had even higher returns, mid-caps have had a slightly better ratio of return to risk.”
Mid-cap companies are slightly more diversified than their small-cap peers, which allows many mid-sized companies to generate more consistent revenue and cash flow and provide more stable stock prices. Additionally, they are not so big that their size would slow down growth.
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The mid-caps segment has also outperformed their large-cap peers, but with lower volatility than small caps. Moreover, the returns of mid-cap stocks have also beaten those of small-cap stocks during the trailing three-, five-, and 10-year periods, with lower volatility.
However, mid-cap stocks are more volatile than their larger counterparts.
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“Mid-cap stocks tend to be more volatile than their large-cap counterparts as they are less likely to sport economic moats or sustainable competitive advantages,” Rawson added. “As such, they tend to be more sensitive to the business cycle.”
Investors interested in targeted exposure to middle capitalization stocks can consider a number of mid-cap ETFs.
U.S. mid-cap ETFs:
- iShares Core S&P Mid-Cap ETF (IJH)
- SPDR S&P MidCap 400 ETF (MDY)
- Vanguard Mid-Cap ETF (VO)
- iShares Russell Mid-cap ETF (IWR)
- Schwab U.S. Mid-Cap ETF (SCHM)
- WisdomTree MidCap Dividend Fund (DON)
- WisdomTree MidCap Earnings Fund (EZM)
- First Trust Mid Cap Core AlphaDEX Fund (FNX)
- iShares Morningstar Mid-Cap ETF (JKG)
- PowerShares S&P MidCap Low Volatility (XMLV)
- Vanguard S&P Mid-Cap 400 ETF (IVOO)
- RevenueShares Mid Cap Fund (RWK)
- Guggenheim Mid-Cap Core ETF (CZA)
- Guggenheim S&P MidCap 400 Equal Weight ETF (EWMC)
- ProShares S&P MidCap 400 Dividend Aristocrats ETF (REGL)
- JPMorgan Diversified Return U.S. Mid Cap Equity ETF (JPME)
- John Hancock Multifactor Mid Cap ETF (JHMM)
Leveraged/inverse mid-cap ETFs:
- ProShares Ultra MidCap400 ProShares (MVV)
- Direxion Daily Mid Cap Bull 3X Shares (MIDU)
- ProShares Short MidCap400 ETF (MYY)
- ProShares UltraPro MidCap400 ETF (UMDD)
- Direxion Daily Mid Cap Bear 3x Shares (MIDZ)
- ProShares UltraShort MidCap400 ETF (MZZ)
- ProShares UltraPro Short Mid Cap 400 ETF (SMDD)
For more information on mid-caps, visit our mid-cap category.