Midcap stocks are sometimes ignored by investors prioritizing opportunities in large-cap and small-cap stocks.
While large-cap companies tend to offer greater stability and balance sheet strength, they are often hindered by being slow-growing. Conversely, small-cap companies tend to be highly volatile but can potentially offer attractive returns. Midcap companies fall in the middle, providing growth potential that’s more attractive than many large-caps, with less volatility than small-caps.
Compared to large caps, midcap companies are potentially more nimble due to their smaller size. This means midcaps may be better positioned to quickly adjust their business approach to take advantage of new or shifting market opportunities, according to Nick Elward, Natixis Investment Management senior vice president and head of institutional product and ETFs.
Additionally, according to Elward, midcap names generally receive less active coverage from stock analysts compared to large-cap companies. This creates an opportunity for skilled, active portfolio managers to uncover opportunities that are missed by the rest of the market.
The Natixis Vaughan Nelson Mid Cap ETF (VNMC) may be a solution for investors looking to add exposure to the midcap space.
Using VNMC for Exposure to Midcap Stocks
VNMC offers exposure to undervalued midcap companies, providing investors access to potentially strong risk-adjust returns from a research-driven value strategy.
The fund is actively managed, which allows the investment team to take advantage of temporary information and marketplace inefficiencies. This enables the fund to capture opportunities at valuations materially below their long-term intrinsic value, according to Natixis.
See more: “ETF of the Week: Natixis Vaughan Nelson Select ETF (VNSE)”
The fund focuses on opportunities that either have undervalued earnings growth, assets, or dividend yields.
This means companies included in the ETF meet certain criteria: Future redeployment of capital is not reflected in the current valuation; the company is priced at a discount to asset value; or the company has a high, stable dividend with minimal perceived downside risk, according to Natixis.
For more news, information, and analysis, visit the Portfolio Construction Channel.