Scared Large Caps Are Beginning to Peak?

With another extraordinary season of earnings reports beginning to draw to a close, large caps continue to outperform, beating even the highest estimates yet again. For many though, there remains the question of how long the trend can continue.

Enter mid cap investments, which provide exposure to companies that have great growth opportunity and are typically faster in their ability to respond to changings markets than large caps. They are also typically more stable and financially secure than small caps.

Stocks closed higher on Tuesday, driven by continued positive earnings reports from big tech, and positive earnings broadly. The Wall Street Journal reported a record closing for the S&P 500, up 0.8%.

“Earnings typically always beat the average analyst estimate, but for the second quarter in a row, they are coming in above the highest estimates, which is pretty unprecedented,” Justin Onuekwusi, head of retail multiasset funds at Legal & General Investment Management, told WSJ.

While advisors and investors are more cautious about the outlook going forward, many remain optimistic. “It has been a pretty strong earnings season and that justifies the medium-term positive view that we have on stocks,” said Onuekwusi.

“Historically, midcaps have been less volatile than small caps, and with typically domestic-focused operations, they can also provide some insulation from geopolitical and trade-related issues,” said Jodie Gunzberg, managing director and chief institutional investment strategist at Morgan Stanley Wealth Management in an interview with U.S. News.

The MID ETF: Mid Cap Exposure with an ESG Focus

The American Century Mid Cap Growth Impact ETF (MID) is an actively managed fund that seeks to invest in mid cap companies that exhibit growth and ESG principles.

Using the United Nations Sustainable Developmental Goals (SDG), which include goals such as affordable and clean energy; decent work and economic growth; industry, innovation, and infrastructure; and responsible consumption and production, the portfolio managers assign each security an impact thesis based on its fundamental growth profile and current or projected SDG alignment.

Using third-party mapping tools, frameworks that are provided by sustainable investing platforms, or internal research, the impact thesis is created. In order to avoid impact impact washing (when companies aren’t actually following SDG but give the impression they are), the highest emphasis is placed on the impact created by the product or service the company produces. Companies can align on more than one SDG, and the fund doesn’t prioritize one SDG over another.

MID uses the market caps from the Russell Mid-Cap Growth Index, which are companies between $677 million to $46 billion, and is a non-diversified fund.

As an actively managed fund, it is semi-transparent and publishes a proxy portfolio daily.

As of the end of June, top sector allocations were information technology at 39%, healthcare at 22%, consumer discretionary at 13%, and industrials at 12%.

MID carries an expense ratio of 0.45%.

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