Due to compelling valuations and amid expectations of robust economic growth for the second quarter and second half, some analysts are bullish on mid-cap stocks and exchange traded funds.
“S&P Capital IQ believes mid-cap stocks, which have a combination of strong earnings growth prospects and income generation, should benefit. Constituents in the S&P Mid Cap 400 Index are expected to generate 20% earnings growth in 2014 and 18% growth in 2015. This is above the 8% and 11% growth expected for the S&P 500 Index,” said the research firm in a new note.
Buoyed by its status as one of the iShares core ETFs, which implies a high degree of cost efficiency, the iShares Core S&P Mid-Cap ETF (NYSEArca: IJH) is one of the fastest-growing mid-cap ETFs on the market today. [iShares Core ETFs Gain Big Following]
S&P Capital IQ rates IJH overweight, citing the $23.2 billion ETF’s diversity in terms of sector exposure and individual holdings.
“In our view, IJH is well diversified at the holdings level, with no holding comprising more than 1% of assets, and at the sector level. All 10 GICS sectors are represented, though there is greater exposure to certain sectors. Financials (23% of assets), Industrials (17%), Information Technology (16%) are the largest. Meanwhile relative to the more well-known S&P 500 Index, exposure is lower to Consumer Staples (3% vs; 9%) and higher to Materials (8% vs. 4%),” according to S&P Capital IQ.
IJH hit a new all-time high Monday and is up 8.1% this year, a performance that is nearly double that of the iShares Russell 2000 ETF (NYSEArca: IWM). That out-performance has come with a lower valuation.
“The S&P Mid Cap 400 Index trailing P/E of 20.8 is just a 4% premium to its median level since 2001, while the S&P Small Cap 600 Index current P/E of 24.6 is 14% above its median,” said S&P Capital IQ.
Although mid-caps are often overlooked by investors, it cannot be ignored that mid-caps have a lengthy history of out-performance over large-caps. Since the March 2009 market bottom, IJH has outperformed the S&P 500 by almost 5,900 basis points. [Mid-Cap ETFs Soar]
Companies in the S&P MidCap 400 Index are growing faster and carry less debt than large-cap S&P 500 stocks. Moreover, mid-caps have greater access to capital markets than small-caps.
IJH, which charges 0.15% per year, brought in over $2.1 billion in new assets during the second quarter, ranking the fund fourth among all ETFs for second-quarter inflows.
iShares Core S&P Mid-Cap ETF