Recently, small-cap stocks and related exchange traded funds are garnering ample attention for being unusually inexpensive relative to large-cap counterparts. Midcap equities and ETFs are also part of that conversation.
Unusually low valuation on stocks with market values ranging from $2 billion to $10 billion could signal opportunity with ETFs such as the Calvert US-Mid Cap Core Responsible Index ETF (CVMC). The fund follows the Calvert US Mid-Cap Core Responsible Index. It’s one of a small number of ETFs that marry midcap stocks with an ESG overlay.
Alone, that could make the ETF appealing to values-based investors. There are also discounts currently available in midcap territory. There is also the likelihood that the U.S. economy has averted a deep recession, an important factor when considering smaller stocks. So the appeal of CVMC could become more apparent.
Good Time to Consider Midcap ETF CVMC
Earlier this year, it was easy to find forecasts and speculation alluding to high likelihood of a U.S. recession. That weighed on mid- and small-cap equities and ETFs, because those segments are more domestically oriented than are large-caps.
That contributed to historically low valuations seen today across the mid- and small-cap spaces. However, it’s not just low multiples on midcaps that could make CVMC appealing. If history repeats, the ETF could be in for some upside.
“The last time relative valuations were this cheap, and sentiment so poor, was followed by an outstanding period of absolute and relative returns for small and mid-cap companies,” according to Schroders research. “In the seven-year period following the market peak in March 2000, small caps rose by more than 70% compared to a rise of less than 10% for large cap stocks.”
Beyond depressed valuations and abating macroeconomic headwinds, CVMC offers investors the benefit of true diversification. None of the ETF’s holdings exceed a weight of 0.68%. That’s a relevant point at a time of elevated concentration/reduced diversification in many cap-weighted large-cap index funds and ETFs.
“The S&P 500 has become increasingly concentrated in a very few mega cap tech companies. In fact, just a handful of US stocks have become so highly priced that they dwarf the value of entire markets. For example as of end August the ‘Super-7’ US stocks – Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla and Meta – made up more of the global index MSCI ACWI than the markets of France, China, the UK and Japan combined,” concluded Schroders.
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