Trying to add some more ETF exposure before the year is through? Now may be the time as the yield curve returned to normal earlier this week for the first time in more than two years. While that could be a blip before an actual recession, the curve reverting adds one more data point to a case for bullishness and a soft landing. Rate cuts on the way could further bolster that case, which overall may speak to an opportunity to invest specifically in midcaps.
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Why midcaps? Snugly placed between expensive, overexposed large-caps, and riskier small-caps, midcap firms combine stability and potential. Midcaps could, then, benefit from rate cuts more than small- or large-caps. With their stability and size, they can borrow reliably and potentially take a leap forward on the boost provided by cuts. If the threat of recession has truly lessened per the yield curve’s reset, their outlook could appeal.
Of course, the next step would be finding the right ETF to invest in the space. A straightforward index fund presents a simple route, but can lack the adaptability and in-depth scrutiny offered by an active ETF. That’s where a pair of funds like the Avantis U.S. Mid cap Equity ETF (AVMC) and the Avantis U.S. Mid cap Value ETF (AVMV) can play a role.
Both ETFs actively invest in the space. Charging 18 and 20 basis points, respectively, the strategies present slightly different approaches to the midcap space. AVMC looks for firms with higher profitability and some value aspects, using fundamental screens like book value and shares outstanding. AVMV takes a much more value-oriented approach, considering similar fundamental factors.
AVMC has returned 12.5% YTD, per Avantis Investors data, beating its benchmark. AVMV meanwhile has returned 13.1% YTD, beating its benchmark of 12.95%, per Avantis Investors data. Together, the pair presents a flexible, tax-efficient pair of relatively lower-fee options to get midcap exposure. At a time when the space could be poised to do well in the next quarter or two, that could prove quite an asset for investor portfolios.
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