A Mid-Cap ETF Hitting the Sweet Spot, Up 10% YTD

Investors are hearing plenty about how large-cap stocks are outpacing their smaller peers this year, but some mid-cap exchange traded funds are still delivering impressive returns. For example, the Vanguard Mid-Cap Growth ETF (NYSEArca: VOT) is up 10% year-to-date and hit a record high Wednesday.

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.

VOT tracks the CRSP US Mid Cap Growth Index and holds nearly 160 stocks. The ETF allocates nearly a quarter of its weight to industrial stocks with financial services and technology names combining for about 36% of the fund’s roster. At the end of March, VOT’s top 10 holdings combined for just 14.1% of the ETF’s weight, according to Vanguard data.

These sector by sector plays may become increasingly important as we head toward a rising rate environment. VOT’s sector lineup clearly tilts toward cyclical groups and cyclical sectors often perform well in the face of higher interest rates.