Middle-capitalization stocks are outperforming this year, and investors can also target the mid-cap segment through related ETFs.
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 mid-caps segment has also outperformed their large-cap peers, but with lower volatility than small caps. Moreover, the returns of mid-cap stocks have also beaten those of small-cap stocks during the trailing three-, five-, and 10-year periods, with lower volatility.
Related: An Attractive Mid-Cap Value ETF Play
Well-known mid-cap ETFs include the iShares Core S&P Mid-Cap ETF (NYSEArca: IJH), SPDR S&P MidCap 400 ETF (NYSEArca: MDY) and the Vanguard Mid-Cap ETF (NYSEArca: VO), among others.
However, there is some concern this market cap segment could be ready to retreat. Interestingly, recently sturdy financial services stocks have been plaguing ETFs like MDY and IJH since last month.
“The Financials Sector comprises 27% of the S&P 400 Index, which makes it the largest weighting by a fair amount; Industrials are second at 21% and Technology is third, at only 13%. Further, of the 96 Financial components, 40 of them are Real Estate stocks. That means Real Estate alone makes up 11% of the entire S&P 400 Index itself, nearly matching the Technology Sector as a whole,” according to an Instinet note posted by Teresa Rivas of Barron’s.
[related_stories]One mid-cap ETF that could be less bad in a pullback is the PowerShares S&P MidCap Low Volatility Portfolio (NYSEArca: XMLV).
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
Real estate stocks have recently been drags on mid-cap benchmarks.
“Of course, there are other factors involved, but with interest rates rising the last few weeks, Real Estate stocks (and IYR) have gotten clobbered. Given their relatively large influence within the MDY, they’d had an outsized effect on its recent performance,” according to the Instinet note featured in Barron’s.
For more information on the low-vol strategy, visit our low-volatility category.
iShares Core S&P Mid-Cap ETF (NYSEArca: IJH)
