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Are Mid-Cap ETFs the Right Choice for 2020?

Sweta Jaiswal, FRM

Although 2019 has seen decelerating global economic growth, depleting export levels, relaxing monetary policies and twists and turns in the Sino-US trade war, the investment scenario for 2020 looks attractive. The IMF expects global growth at 3.4% next year compared with its forecast of 3% for 2019. Moreover, ETFs had total assets under management amounting to nearly $4.3 trillion by last November-end (per ETF.com data) (read: Best & Worst ETF Zones of 2019).

Let’s see what’s making the investment scenario for 2020 attractive.

Sino-US Trade Deal Optimism

President Trump has announced plans to sign the deal with China at the White House on Jan 15, 2020. Within the trade pact, the United States has consented to lower its 15% tariff to 7.5% on about $120 billion worth of Chinese goods. The country has also suspended tariffs on roughly $160 billion of Chinese consumer goods, scheduled to be imposed on Dec 15. Moreover, China recently announced that it will trim tariffs on some imported products, starting 2020.

Beijing announced a new set of tariff exemptions on Dec 19. The waivers will be valid for a year and are expected to be enforced on Dec 26. Notably, the tariffs that have been levied are not likely to be refunded. The latest tax exemption constitutes products like metallocene high-density polyethylene and linear low-density polyethylene. Moreover, several refined oil products comprising white oil and food-grade petroleum wax are included in the list.

Improving US Economy

The upbeat jobs and encouraging manufacturing updates are hinting at a stronger economy. Per Federal Reserve’s recently-released data, the manufacturing sector, accounting for 11% of the U.S. economy, witnessed a 1.1% rise in output during November against 0.7% drop in October. Industrial output also inched up 1.1% in November versus the 0.9% slip in October.

The favorable U.S. homebuilders sentiment data for December also cheered investors. The metric hit an all-time high since June 1999. Moreover, the data on U.S. housing starts, new home sales and building permits has been encouraging (read: ETFs to Gain on Positive US New Home Sales Data).

Fed’s Rate Cuts

After three rate reductions in 2019, the Federal Reserve put a hold on its interest rate policy on Dec 11. It also hinted at keeping interest rates intact next year unless there is any drastic change in the economic outlook. The central bank kept the benchmark interest rates within the 1.50-1.75% band.

Why Mid-Cap ETFs?

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 (see: all the Mid Cap ETFs here).

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 an AUM of $29.01 billion. It charges a fee of 4 basis points. The fund has returned 29.3% in the past year (read: Why Should You Buy Mid-Cap ETFs).

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&PMidCap 400 Index. With a basket of 399 holdings, it has an AUM of $19.13 billion. It charges a fee of 24 basis points. The fund has returned 24.5% in the past year (read: ETF Market Outlook for Q4 2019).

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 631 holdings, it has an AUM of $11.91 billion. It charges a fee of 24 basis points. The fund has returned 24.4% in the past year.

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 160 holdings, it has an AUM of $7 billion. It charges a fee of 7 basis points. The fund has returned 33.5% in the past year.

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 508 holdings, it has an AUM of $6.86 billion. It charges a fee of 4 basis points. The fund has returned 25.8% in the past year.

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Schwab U.S. Mid-Cap ETF (SCHM): ETF Research Reports
 
SPDR S&P MidCap 400 ETF (MDY): ETF Research Reports
 
Vanguard Mid-Cap Growth ETF (VOT): ETF Research Reports
 
iShares Russell Mid-Cap Value ETF (IWS): ETF Research Reports
 
Vanguard Mid-Cap ETF (VO): ETF Research Reports
 
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