When Markets Get Volatile, Don’t Forget Mid-Cap Exposure | ETF Trends

Mid-cap equities exposure provides the perfect balance between small-cap growth and large-cap stability, which helps when markets get volatile.

“Considering the mixed sentiments, mid-cap funds are gaining attention as they provide both growth and stability compared to their small-cap and large-cap counterparts,” an Entrepreneur article notes. “As such, investors seeking to capitalize on the strong fundamentals but worried about uncertainty should consider mid-cap ETFs.”

The Russell Midcap index is up close to 20% for the year, highlighting the ability for mid-caps to capture upside when markets get bullish. However, when sell-offs take place, mid-cap equities can also withstand the market shocks.^RMC Chart

Trading Mid-Caps With Thrice the Leverage

With triple the leverage of your average ETF, the Direxion Daily Mid Cap Bull 3X Shares (MIDU) is up over 60% year-to-date. Mid-caps, however, can be used as a tool to help tamp down volatility while also adding more gains.

MIDU seeks daily investment results, before fees and expenses, of 300% of the daily performance of the S&P MidCap 400 Index. The fund, under normal circumstances, invests at least 80% of its net assets in financial instruments, such as swap agreements, securities of the index, ETFs that track the index, and other financial instruments that provide daily leveraged exposure to the index or ETFs that track the index.

As mentioned, when markets start getting volatile, mid-caps can help a portfolio get more stable. History shows that in times of market stress, mid-caps tend to exhibit resiliency.

“Amid the ongoing COVID-19 crisis, market swings caused by the pandemic have created an opportunity for investors to reposition their portfolios,” State Street Global Advisors notes; the company has a report out on mid-caps entitled “Mid Caps Defy Conventional Wisdom in Crisis and Recovery.” “Conventional wisdom states that large-cap stocks hold up best in market downturns and small-cap stocks lead in a recovery, but our research may surprise you.”

“Our analysis found that during periods of systemic risk since the mid-1990s, contrary to conventional wisdom, large caps did not fall the least and small caps did not lead recoveries,” State Street adds. “Instead, mid caps historically fared the best and showcased resiliency during these times.”MIDU ChartFor more news, information, and strategy, visit the Leveraged & Inverse Channel.