As is widely stated, mid-cap stocks are often overlooked, so it stands to reason that some of the exchange traded funds addressing this corner of the equity market are as well.
Such is life for the Invesco S&P MidCap 400 Equal Weight ETF (NYSEARCA: EWMC). EWMC, which recently turned 11 years old, tracks the S&P MidCap 400 Equal Weight Index. As is the case with large-cap equal-weight strategies, EWMC offers out-performance. While there’s not much hype surrounding this ETF, it’s beating the cap-weighted S&P MidCap 400 Index by 240 basis points this year.
Mid-caps’ history of beating large-caps over long holding periods while being less volatile than small-cap stocks is an appealing trait. Additionally, a benchmark like the S&P MidCap 400 is likely to be home to more profitable stocks than a comparable small-cap gauge, indicating that there are rewards with mid-caps even when risk is reduced relative to small-caps.
“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.
Home to nearly $135 million in assets under management, EWMC offers out-performance potential by way of traits frequently mentioned in the equal-weight conversation, namely size and value exposure. The average market capitalization of EWMC’s 401 components is $6.08 billion, and its sector exposures indicate a cyclical value feel. For example, the fund allocates nearly 31% of its weight to the financial services and consumer discretionary sectors.
Speaking of out-performance, EWMC beat the cap-weighted S&P MidCap 400 Index by 700 basis points over the past three years while being less volatile on an annualized basis. Add to that, ETFs are arguably the superior fund structure for mid-cap access.
“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.”
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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.