Mighty Midcap ETFs
This article is part of a regular series of thought leadership pieces from some of the more influential ETF strategists in the money management industry. Today's article is by Craig Israelsen, Ph.D., creator of the 7Twelve portfolio, consultant to 7Twelve Advisors, LLC and executive-in-residence in the Financial Planning Program at Utah Valley University.
Over the last 25 years (1996-2020), the S&P Midcap 400 Index outperformed the S&P 500 Index and the S&P SmallCap 600 Index. Each of these three “core” indexes is considered a blend index (meaning a blend a value and growth).
From 1996 through the end of 2020, the S&P Midcap 400 Index outperformed the S&P SmallCap Index by roughly 100 bps (with fractionally higher volatility) and also outperformed the S&P 500 Index by roughly 200 bps with lower volatility.
In spite of that, roughly 10 times more money is invested in large cap U.S. blend funds (mutual funds and ETFs) than in midcap blend U.S. equity funds ($4.8 trillion in U.S. large blend funds versus $493 billion in U.S. midcap blend funds as of 12/31/2020).
| 25-Year Return | 25-Year Std Deviation |
S&P Midcap 400 Index | 11.45% | 16.96% |
S&P SmallCap 600 Index | 10.52% | 16.36% |
S&P 500 Index | 9.56% | 17.71% |
Annual % Returns | S&P 500 Index | S&P Midcap 400 Index | S&P SmallCap 600 Index |
1996 | 22.96 | 19.25 | 21.32 |
1997 | 33.36 | 32.25 | 25.58 |
1998 | 28.58 | 19.12 | -1.31 |
1999 | 21.04 | 14.72 | 12.4 |
2000 | -9.1 | 17.51 | 11.8 |
2001 | -11.89 | -0.61 | 6.54 |
2002 | -22.1 | -14.53 | -14.63 |
2003 | 28.68 | 35.62 | 38.79 |
2004 | 10.88 | 16.48 | 22.65 |
2005 | 4.91 | 12.56 | 7.68 |
2006 | 15.79 | 10.32 | 15.12 |
2007 | 5.49 | 7.98 | -0.3 |
2008 | -37 | -36.23 | -31.07 |
2009 | 26.46 | 37.38 | 25.57 |
2010 | 15.06 | 26.64 | 26.31 |
2011 | 2.11 | -1.73 | 1.02 |
2012 | 16 | 17.88 | 16.33 |
2013 | 32.39 | 33.5 | 41.31 |
2014 | 13.69 | 9.77 | 5.75 |
2015 | 1.38 | -2.18 | -1.97 |
2016 | 11.96 | 20.74 | 26.56 |
2017 | 21.83 | 16.24 | 13.23 |
2018 | -4.38 | -11.08 | -8.48 |
2019 | 31.49 | 26.2 | 22.78 |
2020 | 18.4 | 13.66 | 11.29 |
% of Time Best Annual Performer | 44% | 28% | 28% |
25-Year Annualized Return | 9.56% | 11.45% | 10.52% |
25-Year Standard Deviation | 17.71% | 16.96% | 16.36% |
These three S&P indexes provide a broad view of the performance of U.S. equities—but from a “blend” perspective. In the tables below, I’ve highlighted the top five value, growth and blend ETFs over the past three years across U.S. large cap, midcap and small cap.
As you scan the results, it’s clear that midcap ETFs in the blend and growth categories compete very favorably with large cap blend and growth ETFs. The recent three years has been much kinder to large cap funds.
If you’re a long-term U.S. equity investor, a midcap ETF belongs in your portfolio.
Top 5 Value ETFs | |||||
(based on 3-year annualized return from 2018-2020) | |||||
Large Cap Value ETFs | 3-Year Annualized Return | Midcap Value ETFs | 3-Year Annualized Return | Small Cap Value ETFs | 3-Year Annualized Return |
Barclays ETN+ Shiller Capet (CAPE) | 15.29 | Cambria Shareholder Yield ETF (SYLD) | 7.66 | VictoryShares US Small Cap High Dividend Volatility Weighted ETF (CSB) | 7.71 |
First Trust Rising Dividend Achievers ETF (RDVY) | 12.07 | Invesco S&P MidCap Value with Momentum ETF (XMVM) | 7.54 | Pacer US Small Cap Cash Cows 100 ETF (CALF) | 7.57 |
iShares Core Dividend Growth ETF (DGRO) | 11.64 | Reverse Cap Weighted US Large Cap ETF (RVRS) | 7.44 | Invesco S&P SmallCap 600 Revenue ETF (RWJ) | 6.4 |
Schwab US Dividend Equity ETF (SCHD) | 11.47 | Invesco S&P MidCap 400 Revenue ETF (RWK) | 6.69 | Invesco S&P SmallCap Value with Momentum ETF (XSVM) | 6.37 |
iShares US Dividend and Buyback ETF (DIVB) | 10.97 | First Trust SMID Cap Rising Dividend Achievers ETF (SDVY) | 6.15 | First Trust Small Cap Value AlphaDEX ETF (FYT) | 5.48 |
Top 5 Blend ETFs | |||||
(based on 3-year annualized return from 2018-2020) | |||||
Large Cap Blend ETFs | 3-Year Annualized Return | Midcap Blend ETFs | 3-Year Annualized Return | Small Cap Blend ETFs | 3-Year Annualized Return |
Invesco Russell 1000 Dynamic Multi Factor ETF (OMFL) | 16.99 | Vanguard Extended Market ETF (VXF) | 15.33 | Nuveen ESG Small-Cap ETF (NUSC) | 12.42 |
Invesco S&P 500 Top 50 ETF (XLG) | 16.61 | Invesco S&P MidCap Quality ETF (XMHQ) | 13.47 | iShares Russell 2500 ETF (SMMD) | 11.37 |
Change Finance US Large Cap Fossil Fuel Free ETF (CHGX) | 16.4 | Franklin LibertyQ US Mid Cap Equity ETF (FLQM) | 12.59 | Vanguard Small-Cap ETF (VB) | 11.22 |
Eaton Vance Stock NextShares (EVSTC) | 16.22 | Vanguard Mid-Cap ETF (VO) | 12.04 | Invesco PureBeta MSCI USA Small Cap ETF (PBSM) | 10.7 |
iShares MSCI USA ESG Select ETF (SUSA) | 15.87 | iShares Russell Mid-Cap ETF (IWR) | 11.45 | Vanguard Russell 2000 ETF (VTWO) | 10.33 |
Top 5 Growth ETFs | |||||
(based on 3-year annualized return from 2018-2020) | |||||
Large Cap Growth ETFs | 3-Year Annualized Return | Midcap Growth ETFs | 3-Year Annualized Return | Small Cap Growth ETFs | 3-Year Annualized Return |
UBS AG FI Enhanced Large Cap Growth ETN (FBGX) | 34.8 | ARK Innovation ETF (ARKK) | 52.55 | Janus Henderson Small Cap Growth Alpha ETF (JSML) | 20.6 |
Credit Suisse FI Large Cap Growth Enhanced ETN (FLGE) | 34.26 | Renaissance IPO ETF (IPO) | 32.15 | iShares Morningstar Small-Cap Growth ETF (JKK) | 19.81 |
Invesco QQQ Trust (QQQ) | 27.33 | SPDR S&P Kensho Smart Mobility ETF (HAIL) | 24.52 | Vanguard Small-Cap Growth ETF (VBK) | 19.21 |
Global X Millennials Thematic ETF (MILN) | 25.29 | iShares Morningstar Mid-Cap Growth ETF (JKH) | 24.04 | Vanguard Russell 2000 Growth ETF (VTWG) | 16.25 |
Nuveen ESG Large-Cap Growth ETF (NULG) | 25.09 | Invesco S&P MidCap Momentum ETF (XMMO) | 23.38 | iShares Russell 2000 Growth ETF (IWO) | 16.15 |
Contact Craig Israelsen at craig@7TwelvePortfolio.com
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