Education on Mid-Caps Could Be Fruitful for Investors

Due in large part to the dominance of mega-cap growth stocks, large-cap equities beat smaller rivals, including mid-caps, over the past decade.

Widely followed mid-cap blend benchmarks aren’t bereft of growth sectors. Broadly speaking, those indexes aren’t as heavily allocated to those groups are large-cap gauges. Many market participants overlook mid-cap equities. It’s easy to see why some investors continue glossing over this asset class.

That trend could be turned for the better if investors gain firmer grasps on the benefits of mid-caps – a task made easier with exchange traded funds such as the Calvert US-Mid Cap Core Responsible Index ETF (CVMC).

Lack of uniformity regarding exactly what market capitalization spectrium counts as mid-cap confounded advisors and investors. CVMC, which follows the Calvert US Mid-Cap Core Responsible Index, makes it easy. The index’s selection universe is confined to the 200th through 1,000th largest domestic stocks as ranked by market value.

CVMC Advantages

CVMC emphasizes environmental, social, and governance (ESG) risks and opportunities. It’s still a passively managed fund and its index is cap-weighted — two important traits in assessing mid-cap funds.

“Market-cap weighting harnesses the market’s collective wisdom on the relative value of each stock, limiting turnover and the associated transaction costs,” noted Morningstar analyst Mo’ath Almahasneh. “These index providers also implement buffers to limit deletions and additions along the lower market-cap bound, further reducing turnover. Funds tracking such indexes have an average turnover of only 15% over the past 10 calendar years, which was 52 percentage points lower than their average category peer.”

Low index turnover is important because it keeps investors’ total cost of ownership in check while preventing performance chasing.

“Despite the subtle variance in construction philosophies, the differences tend to wash out over the long run. Aided by low turnover, buffers on the lower bound, and market-cap weighting, the indexes have performed similarly over the past 10 years through June 2023,” added Almahasneh.

Speaking of costs, CVMC has an annual expense ratio of 0.15%, or $15 on a $10,000 investment. Six other mid-cap ETFs sport that same year fee and just a dozen are cheaper. Those factoids are feathers in CVMC’s proverbial cap. Additionally, the ETF is cost-effective among the broader mid-cap ETF category. Its annual fee compares favorably with the ESG ETF universe.

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