Investors looking to make new year’s resolution that will prove to be easy to keep and rewarding may want to resolve to add more mid-cap exposure to their portfolios. That objective can be accomplished with an array of easy-to-understand, cost-effective ETFs, including the iShares Core S&P Mid-Cap ETF (NYSEArca: IJH).
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.
IJH, one of the biggest mid-cap ETFs in the U.S., tracks the S&P MidCap 400 Index. Importantly, the fund has low fees, making it compelling for long-term investors.
“BlackRock charges an ultra-low 0.07% fee for this fund. This cost advantage has translated into strong category-relative performance over the long term,” said Morningstar in a recent note. “Over the trailing 10 years through June 2019, the fund outperformed the category average by 208 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 because of its low expense ratio and lower-than-average cash drag.”
Inside IJH
There are compelling reasons why IJH makes for a useful, long-term portfolio building block.
“Mid-cap stocks tend to have higher long-term growth potential than large-cap stocks,” according to Morningstar. “They tended to grow earnings at a faster clip than the stocks in the S&P 500 over the trailing 10 years through July 2019. Furthermore, mid-cap stocks tend to exhibit slightly lower volatility than small caps. Over the trailing 10 years through July 2019, IJH exhibited an annualized standard deviation of 15.03%.”
IJH has minimal single-stock risk, but the fund’s top four sector weights – financial services, industrials, technology, and consumer cyclicals – combine for over 61% of the ETF’s roster.
Morningstar has a Gold rating on IJH.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.