Mid-cap stocks often sport two monikers: overlooked, and the “sweet spot” of the equity market. The former isn’t necessarily a negative and the latter is clearly a compliment. Still, many investors still grapple with how to approach this segment.
Those struggles may be amplified for market participants seeking to pair mid-caps with the benefits of environmental, social, and governance (ESG) investing. After all, the bulk of domestic equity strategies featuring ESG overlay focus on large-cap stocks. The Calvert US-Mid Cap Core Responsible Index ETF (CVMC) alters that landscape for investors seeking exposure to smaller stocks.
CVMC could prove to be a well-timed addition to the ESG ETF fray because it fills a void. Said another way, the current population of mid-cap ESG ETFs is sparse. Home to more than 600 stocks, CVMC offers investors some other potentially notable benefits.
Consider CVMC Perks
The primary reason mid-caps have the “sweet spot” designation is that the asset class has long outperformed large-caps. However, they are also less volatile than small-caps. Actually, mid-caps have outpaced small-caps over lengthy holding periods, too. But the positive traits don’t end there.
While those characteristics might imply that investors must pay up to embrace the perks associated with mid-cap equities and ETFs such as CVMC, that’s not the case today. In fact, this corner of the market is attractively valued.
“The more domestically-focused US small and mid caps, however, are not excessively valued. They offer diversified exposure to the broad economy. Many of these companies don’t have to look overseas for growth, and so are to a degree insulated from the rising geopolitical tensions which look set to reshape global alliances, trade and investment flows,” noted Schroders.
Another point to consider is that while CVMC are smaller by market value than the bulk of the S&P 500, that doesn’t imply a lack of liquidity. That’s pertinent because ETFs littered with illiquid stocks can feature wider spreads, driving up the total cost of ownership.
“This is important at a time when investors are rediscovering risk, as liquidity tightens due to rising interest rates, triggering a range of stresses. With market valuations ranging up to $20 billion, however, US small and mid caps are a well traded and liquid asset class,” added Schroders.
Regarding “front page” costs, CVMC has an annual expense ratio of 0.15%, or $15 on a $10,000 investment, which is favorable when considering the pairing of smaller stocks and ESG.
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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.