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‘Impressive’ Returns of Mid-Cap ETFs Get Lost in the Mix


Stuck in the middle has been a pretty good place to be with mid-cap ETFs the past few years.

For example, SPDR S&P MidCap 400 (MDY) has outperformed its large-cap and small-cap peers by a significant margin since the financial crisis.

Other ETFs for mid-caps include iShares Core S&P Mid-Cap (IJH), Vanguard Mid-Cap (VO), iShares Russell Mid-Cap (IWR) and Schwab U.S. Mid-Cap (SCHM).

The Dow Jones Industrial Average, S&P 500, Nasdaq Composite, S&P MidCap 400 and small-cap iShares Russell 2000 have all retraced at least 100% of their losses suffered during the financial crisis, according to chartoftheday.com.

“However, it has been the often overlooked S&P 400 (mid-cap stocks) that has been the star performer,” the service notes. “The S&P 400 has recouped over 140% of its financial crisis decline — a very impressive performance.”

SPDR S&P MidCap 400 sports a five-year annualized return of 8.4%, compared with 5% for SPDR S&P 500 (SPY) and 7.1% for iShares Russell 2000 (IWM).

“Mid-cap stocks tend to be more volatile because of narrower economic moats and a greater sensitivity to macroeconomic risks, but with this greater volatility comes a higher beta and the expectation for higher returns,” Morningstar notes in a profile of MDY, the mid-cap ETF.

“While over long periods of time mid-cap stocks tend to outperform, it is unlikely that they will be able to continue to outperform at the same rate as they have over the last decade,” it adds. “Although this asset class should be part of any equities investment allocation, mid-caps’ higher valuations and greater vulnerability to economic conditions are reasons for caution.”


Full disclosure: Tom Lydon’s clients own IWM and SPY.

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.