SCHM “offers efficient, well-diversified exposure to mid-cap stocks. Its top 10 holdings represent around 4% of the portfolio,” said Morningstar. “Because the Dow Jones U.S. Total Stock Market Mid-Cap Index is not widely followed, the market impact costs to move securities into and out of the index are lower than the costs some of its more popular peers incur. The underlying index introduced new liquidity requirements in June 2015. Now, 10% of a stock’s shares must trade publicly before it can be added to the index.”
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Another mid cap ETF play is looking to smart beta options for traditional exposure to the S&P MidCap 400.
One example is the Oppenheimer Mid Cap Revenue ETF (NYSEArca: RWK) selections components from the broad basket of S&P MidCap 400 stocks but reweights holdings based on each company’s revenue, producing a portfolio that could potentially provide a better representation of companies’ economic contribution to the benchmark index.
Due to the revenue-weight tilt, investors won’t be exposed to trendy, overpriced stocks that market cap-weighted indices are prone to be, and investors will hold companies with more attractive valuation characteristics with a slight value tilt. By rebalancing the portfolio every quarter towards companies that have had persistent sales, revenue weighting keeps the portfolio from getting ahead of itself in overheating market conditions.
For more information on mid-caps, visit our mid-cap category.