With the S&P 500 down 17.5% year-to-date, which is perilously close to the definition of a bear market, it’s not surprising that investors are eschewing smaller stocks, including mid-cap fare.
While this may not be the ideal time to be committing significant capital to equities, irrespective of market capitalization, it is an ideal time for investors to construct lists of assets that are attractive on valuation and potential buys when markets show signs of snapping out of the recent funk.
In that conversation, the Invesco S&P MidCap 400 Equal Weight ETF (NYSEARCA: EWMC) merits consideration. EWMC tracks the S&P MidCap 400 Equal Weight Index, which is the equal-weight counterpart to the cap-weighted S&P MidCap 400. Amid the aforementioned broader market calamity, EWMC is predictably scuffling this year, but it is outperforming the cap-weighted S&P MidCap 400 by 150 basis points.
EWMC performing less poorly than cap-weighted rivals may be a surprise to some investors because the fund holds some higher volatility names, indicating that its value tilt is steadying the ship somewhat this year.
“This strategy tends to hold smaller, more undervalued companies compared with its average peer in the Mid-Cap Blend Morningstar Category. Looking at additional factor exposure, this strategy has exhibited a tilt toward high-volatility stocks, or the shares of companies with histories of higher standard deviation of returns. Such exposure tends to pay off when markets are hot and to be costly when they are not,” according to Morningstar.
Regarding value, EWMC allocates about 30% of its weight to the consumer cyclical and financial services sectors. Among the better-performing value sectors, the fund’s combined energy/materials allocation is over 10%. That relatively low percentage is the result of those sectors usually being lightly populated by mid-cap stocks.
“The portfolio has allocations in its top 2 sectors consumer cyclical and industrials that are similar to the average portfolio in the category. The sectors with low exposure compared to their category peers are technology and communication services; however, the allocations are similar to the average category portfolio,” added Morningstar.
None of EWMC’s 402 holdings exceed a weight of 0.42%. The fund charges 0.40% per year, which is decent among non-cap-weighted mid-cap strategies.
“It is imperative to evaluate fees, which can eat away at expected returns. This share class charges a fee that ranks in its Morningstar Category’s cheapest quintile,” concluded the research firm.
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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.