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.
The Schwab U.S. Mid-Cap ETF (NYSEArca: SCHM) is one exchange traded fund investors can tap for mid-cap exposure. SCHM tracks the Dow Jones US Mid-Cap Total Stock Market Index and is one of the cheapest mid-cap ETFs available in the U.S.
Middle-capitalization stocks may offer a suitable middle ground between more volatile small-caps and less mobile large-caps. Mid-cap companies are slightly more diversified than their small-cap peers, which allows many of the 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. Consequently, mid-caps have generated historically higher returns than large-caps, with higher volatility and higher beta, but at a lower ratio of return-to-risk than small-caps.
“When you consider the fact that SCHM has the lowest costs in this category, as well as commission-free trading on the Schwab platform, this fund is the most appealing choice,” according to a Seeking Alpha analysis of mid-cap ETFs.
The $3.2 billion SCHM debuted in early 2011 and charges just 0.05% per, the equivalent of $5 on a $10,000 stake. SCHM holds 512 and has portfolio turnover of 21.6%, according to issuer data.
SCHM’s largest sector allocation is 16.4% to financial services while industrial and technology stocks combine for almost 30% of the ETF’s weight. Consumer discretionary and real estate stocks combine for a quarter of SCHM’s roster.
Mid-cap stocks and exchange traded funds are often glossed over relative to their large- and small-cap counterparts, but stocks the in the middle of the market capitalization spectrum have the potential to deliver handsome returns.
For more information on mid-caps, visit our mid-cap category.