Time and again, people call mid-caps the forgotten corner of the equity market. Therefore, it stands to reason that many investors may not be aware that they can access this alluring asset class with environmental, social, and governance (ESG) benefits.
The Calvert US-Mid Cap Core Responsible Index ETF (CVMC) is one of the exchange traded funds that bring the mid-cap/ESG combination to life. CVMC follows the Calvert US Mid-Cap Core Responsible Index and could be a relevant idea when signs are finally emerging that 2023 strength in equities is matriculating to smaller stocks.
“Through the end of May, midcap stocks, as measured by the Russell MidCap index, had a marginally positive total return year-to-date, while the S&P 500 was up close to 10%. Since June began, the Russell MidCap rose over 6.7% versus the S&P 500 at 5.5%,” reported Bill Stone for Forbes.
Some June momentum is a positive for smaller stocks, but mid-caps still trail large-cap benchmarks on a year-to-date basis. CVMC debuted in late January, and while it’s trailed the S&P 500 since inception, it is slightly outpacing the S&P MidCap 400 Index. This indicates that there could be value in the mid-cap/ESG marriage relative to plain vanilla mid-cap ETFs.
CVMC Could Be Long-Term Winner
As noted above, CVMC is a rookie ETF. Additionally, past performance isn’t a promise of future returns. All that said, it’s hard to ignore the long-term track record of mid-cap equities.
“Most people don’t know that midcap stocks have outperformed the more talked about small-cap stocks over the last five years, ten years, and since 1994. In fact, despite underperforming large-cap stocks, as defined by the S&P 500, over the previous five and ten years, midcap stocks have outperformed them over the long term!” added Stone.
Obviously, five- and 10-year holding periods are extensive. For investors looking for reasons why mid-caps and CVMC could offer some near-term upside, that possibility is on the table. For starters, some market observers believe that cyclical stocks are attractive on valuation and primed for a rebound. CVMC allocates over 48% of its weight to industrial, financial services, and consumer discretionary stocks.
Second, smaller stocks have established track records of performing well immediately following recessions. It’s debatable whether or not the U.S. economy has already endured a technical recession, but if a more earnest economic contraction doesn’t materialize, it’s possible that smaller stocks, including mid-caps, will react as if they are emerging from a recession.
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