Mid-Cap ETFs Get Their Moment In The Limelight

March 15th at 11:30am by Tom Lydon

As investors start to diversify their equity holdings, medium-sized companies and mid-cap exchange traded funds (ETFs) are standing out and experiencing greater flows of cash into the asset class.

In February, mid-cap ETFs experienced five times the amount of new investment inflows as compared to small-cap funds and even outpaced large-caps, writes Murray Coleman for Barron’s. Matt King, chief investment officer at Bell Investment Advisors, remarks that “the momentum is clearly with mid-caps, which historically have provided superior risk/reward profiles compared to small-caps.”

Scott Chronert, a Citigroup small- and mid-cap equities strategist, believes that mid-caps are “proving to be an easy way for investors to migrate up in market-cap size to gain more stability and liquidity without sacrificing performance.”

In the last 12 months, mid-cap blend stocks have outperformed small-caps by an average 0.5%, and mid-caps are up more than 2% over the last 15 years. The Russell mid-cap index has gained around 137% since March 9, 2009. Mid-caps continue to draw investors as they look cheaper than small-caps on a relative price/earnings basis – the S&P MidCap 400 Index is trading around 16.6 times 2011 expected earnings. [Asset Class ETFs: Small, Medium and Large.]

Additionally, mid-cap companies could benefit from the greater merger-and-acquisitions activity in the markets.

  • Vanguard Mid-Cap ETF (NYSEArca: VO) limits almost all if its holdings to mid-caps.
  • SPDR S&P MidCap 400 (NYSEArca: MDY) is the most popular and most liquid mid-cap ETF.
  • iShares S&P MidCap 400 Index (NYSEArca: IJH) is based on the same index as MDY, but the fund holds more smaller companies.

For more information on medium sized companies, visit our mid-cap category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, 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.

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