Mid-cap companies are slightly more diversified than their small-cap peers, which allows many mid-sized companies to generate more consistent revenue and cash flow and provide more stable stock prices. Additionally, they are not so big that their size would slow down growth.
The fast-growing PowerShares S&P MidCap Low Volatility Portfolio (NYSEArca: XMLV) is one way for conservative investors to gain exposure to mid caps while skirting volatility. XMLV tracks the performance of the S&P MidCap 400 Low Volatility Index, which tracks 80 of the least volatile stocks from the S&P MidCap 400 Index over the past 12 months and weights holdings based on the securities’ inverse volatility, so the least volatile securities have the highest weighting.
Related: An Attractive Mid-Cap Value ETF Play
Low-volatility ETFs provide investors the ability to track broad markets with some downside protection. The low-volatility strategy has a number of academic studies to support the rationale behind the investment idea, according to VIX and More, but it is better illustrated with a side-by-side comparison.
“Investors looking for mid-cap purity might be surprised to learn XMLV devotes over 28% of its weight to small caps, a situation likely to be rectified upon the ETF’s next rebalance. Still, it is hard to quibble with XMLV being one of the best ETFs because year-to-date and over longer periods, the ETF is thumping traditional mid-cap funds,” according to InvestorPlace.
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