It is often said that large-caps, many of which are multi-national firms generating significant portions of their revenue overseas, benefit from a weak dollar while smaller companies, due to their domestic focus, benefit from a stronger dollar.
Mid-caps should not be left out of the dollar conversation. Mid-cap companies are slightly more diversified than their small-cap peers, which allows many mid-sized companies to generate more consistent revenue and cash flow and provide more stable stock prices. Additionally, they are not so big that their size would slow down growth.
Mid-cap exchange traded funds include the Schwab U.S. Mid-Cap ETF (NYSEArca: SCHM), Oppenheimer Mid Cap Revenue ETF (NYSEArca: RWK), iShares Core S&P Mid-Cap ETF (NYSEArca: IJH), SPDR Mid-Cap 400 (NYSEArca: MDY) and the Vanguard Mid-Cap ETF (NYSEArca: VO).
RWK selects components from the broad basket of S&P MidCap 400 stocks but reweights holdings based on each company’s revenue, producing a portfolio that could potentially provide a better representation of companies’ economic contribution to the benchmark index. When comparing RWK to the benchmark S&P MidCap 400, the revenue-weighted ETF takes a greater tilt toward small-capitalization stocks and leans toward the value category. The ETF has a 0.39% expense ratio.
“The falling U.S. dollar helps U.S. equities but mid-caps benefit most,” said S&P Dow Jones Indices. “For every 1% drop in the U.S. dollar, the S&P MidCap 400 (TR) rises 3.20% on average. This is more than the 2.63% on average from the S&P 500 (TR) and 2.96% from the S&P SmallCap 600 (TR).”