Benchmarks focusing on smaller stocks, including mid-caps, are trailing the large-cap S&P 500 this year, but that should not be viewed as an invitation for investors to ignore non-large-cap fare.
Oft-overlooked, mid-cap stocks are in the green on a year-to-date basis, as measured by the widely observed S&P MidCap 400 Index. With some market observers backing the idea of more upside for smaller stocks into year-end and beyond, exchange traded funds such as the Calvert US-Mid Cap Core Responsible Index ETF (CVMC) could be worth examining.
One of the benefits offered by CVMC is that it’s a mid-cap blend fund. This means investors don’t need to make a decision between growth or value mid-cap equities. As experienced advisors and market participants know, factor timing is difficult. Via its blend approach, CVMC eliminates the factor timing burden.
Mid-Cap ETF CVMC’s Blend Benefits
There are perks associated with CVMC’s blend approach. For example, smaller growth stocks, whether mid- or small-caps, can sport elevated volatility profiles relative to the broader market and large-cap equivalents. Many investors want to access the benefits of smaller equities, but not all want to deal with increased volatility.
“Because blend investing includes both growth and value stocks, it may be less volatile than a portfolio that focuses solely on growth or value. This can make blend investing a more attractive option for investors who seek to balance capital appreciation and risk mitigation,” noted Bob Kaynor, head of U.S. small- and mid-cap equities at Schroders.
CVMC also offers mid-cap investors diversification benefits. There will be times when growth stocks outperform value and vice versa, but pinpointing when that will happen is difficult. Some investors overallocate to growth or value when one of those factors is thriving. This could potentially create unnecessary concentration risk within a portfolio.
“Blending investing styles could provide diversification benefits by combining elements of both growth and value investing. By diversifying across different investment styles, investors can potentially benefit from market upswings while also mitigating the risk of market downturns relative to a pure growth or value investment,” added Kaynor.
None of CVMC’s holdings exceeds a 0.61% weight, indicating single-stock risk is benign in the fund. The fund also provides exposure to nearly all of the global industry classification standard sectors with five commanding double-digital allocations.
“The freedom to invest in any company is also important. In the philosophy of blend or core investing, we think a company’s status as growth or value is irrelevant, and managers should seek to choose the most promising small- and mid-cap equities regardless of style or other characteristics,” concluded Kaynor.
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