Mid-cap stocks were admirable performers in 2021. On the last trading day of the year, the S&P MidCap 400 Index was up 23%.
Investors looking to diversify away from large-cap equities in 2022 ought to keep that in mind and remember that 2021 isn’t a one-off in terms of mid-caps delivering decent performances. This often overlooked corner of the equity market frequently outperforms large-caps over long holding periods.
There’s a slew of traditional mid-cap exchange traded funds for investors, but potentially better outcomes and more income await with the WisdomTree U.S. MidCap Dividend Fund (NYSEARCA: DON). DON is beating the S&P MidCap 400 this year by about 440 basis points in 2021, and that’s something to consider ahead of what could be a compelling environment for mid-caps in the new year.
While mid-caps are frequently overlooked, the group’s penchant for topping large-caps over long holding periods while being less volatile and often home to more profitable companies than the small-cap space makes DON and its brethren relevant 2022 considerations.
“This mix of characteristics can make mid-caps a useful category for institutional investors with evolving risk appetites and outlooks. Some may foresee lesser returns and greater volatility ahead for small-caps in this new inflationary period, for example, or seek to lower their exposure to large-caps dominated by tech titans,” according to BlackRock.
The $3.16 billion fund adds to the already attractive mid-cap proposition by introducing equity income to the equation — a pursuit most of the funds in this category aren’t dedicated to. DON follows the WisdomTree U.S. MidCap Dividend Index, which is a fundamentally weighted benchmark that weights components on the basis of annual cash dividends paid.
Some experts argue that the ETF structure is the superior vehicle for investors seeking broad-based mid-cap equity exposure.
“In choosing a fund type, ETFs may offer advantages over traditional open-ended mutual funds. They tend to have greater transparency and lower operating costs, for two,” adds BlackRock. “But the flexibility ETFs carry is the real factor. Whereas moving in or out of major positions can take days with mutual funds, ETFs can accomplish this with a single trade – and that’s critical for institutional investors when they need to react quickly to market information.”
DON holds 343 stocks with the financial services and consumer discretionary sectors combining for over 37% of the fund’s weight.
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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.