Investors looking for a good deal on mid-cap ETFs do not have to look far as the ETF fee battles have permeated the mid-cap arena. For example, the Schwab U.S. Mid-Cap ETF (NYSEArca: SCHM) is cheap by any standard, mid-cap or otherwise.
The $6.3 billion SCHM, which turns nine years old next January, charges just 0.04% per year, or $4 on a $10,000 investment, making it one of the least expensive funds in the mid-cap category. SCHM follows the Dow Jones U.S. Mid-Cap Total Stock Market Index.
That cap-weighted benchmark “includes the mid-cap portion of the Dow Jones U.S. Total Stock Market Index actually available to investors in the marketplace. The Dow Jones U.S. Mid-Cap Total Stock Market Index includes the components ranked 501-1000 by full market capitalization,” according to Schwab.
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.
SCHM’s “cost advantage has translated into strong category-relative performance over the long term,” said Morningstar in a note out Wednesday. “From its inception in January 2011 through July 2019, the fund has outperformed the category average by 270 basis points annualized while exhibiting slightly greater risk. On a risk-adjusted basis, the fund outperformed the mid-blend category average. Overall, this fund should continue to enjoy a durable long-term edge over many of its competitors thanks to its low expense ratio and lower-than-average cash drag.”
Mind Mid Caps
Middle capitalization stocks, or sometimes referred to as the market’s sweet spot, could help investors achieve improved risk-adjusted returns. 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.
“Mid-cap stocks tend to have higher long-term growth potential than large-cap stocks. This is evidenced by the Dow Jones U.S. Total Stock Market Mid Cap Index’s higher earnings growth compared with the Dow Jones U.S. Total Stock Market Large Cap Index over the trailing five years through July 2019,” according to Morningstar. “Furthermore, mid-cap stocks exhibit less volatility than small-cap stocks. Over the trailing five years through July 2019, the Dow Jones U.S. Total Stock Market Mid Cap Index’s annualized standard deviation of returns was 13.6% versus 15.7% for the Dow Jones U.S. Total Stock Market Small Cap Index.”
Morningstar has a Gold rating on SCHM.
For more information on mid-caps, visit our mid-cap category.