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Here's Why Mid-Cap ETFs Are Good Bets Amid Market Uncertainties
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Investors continue to grapple with the ongoing Russia-Ukraine war uncertainties, resurging COVID-19 cases in China, red-hot inflation levels and the Fed’s aggressive stance on interest rate hikes. However, market participants are now keeping a close eye on the first-quarter earnings season to determine the impact of high inflation levels and the war crisis on corporate America’s earnings forecasts for 2022.
The world’s largest economy is struggling with rising inflation levels. Per the latest Labor Department report, the Consumer Price Index (CPI) jumped 8.5% year over year in March, reaching the highest level since December 1981 (according to a CNBC report). The reading also surpassed the already high Dow Jones estimate of 8.4%. The high inflation level can set the tone for another interest rate hike soon.
The core inflation index, which excludes volatile components such as food and energy prices, rose 6.5% year over year, marking the hottest reading since August 1982 (per a CNBC article).
The recently released FOMC minutes of the March meeting highlighted the central bank’s plans to control the inflation levels by larger interest rate hikes. It also outlined the method and magnitude of reducing the balance sheet holding around $9 trillion in assets. Notably, the Federal Reserve officials have decided to shrink their balance sheet by approximately $95 billion a month. More precisely, the Fed plans to reduce $60 billion in Treasurys and $35 billion in mortgage-backed securities, phasing in over three months, starting May (per a CNBC article).
Meanwhile, the strong labor market and recovering U.S. economy have boosted the positive market sentiments as consumer confidence also improved in March after declining for the first two months of 2022. The Conference Board's measure of consumer confidence index stands at 107.2 in March 2022 versus 105.7 in February. Moreover, March’s reading nominally surpassed the consensus estimate of 107, per a Bloomberg survey of economists. However, the metric continues to be below the pre-pandemic level of 132.6 achieved in February 2020.
The latest encouraging preliminary consumer sentiment readings for early April can also be largely attributed to the improving job market. The University of Michigan’s preliminary consumer sentiment rose to 65.7 in early April from a final reading of 59.4 last month, improving 10.6% over the prior month. The metric surpassed the market forecast of the index, coming in at 59.
March's encouraging U.S. industrial output data can largely be attributed to the improving labor market and easing pandemic conditions. Per the Fed’s recently-released data, total industrial production rose 0.9% in March. A 0.9% rise in the manufacturing output also looked encouraging. There was a 0.4% rise in utility production. Moreover, mining production witnessed a 1.7% uptick, mainly due to strength in the oil and gas sector.
Mid-Cap ETFs to Consider
Considering the mixed sentiments, mid-cap funds are gaining attention as they provide both growth and stability compared to their small-cap and large-cap counterparts. As such, investors seeking to capitalize on the strong fundamentals but worried about uncertainty should consider mid-cap ETFs. Below, we have presented five popular mid-cap ETFs:
Vanguard Mid-Cap ETF seeks to track the performance of the CRSP US Mid Cap Index, which measures the investment return of mid-capitalization stocks. VO has AUM of $54.93 billion. Vanguard Mid-Cap ETF charges a fee of 4 basis points (bps).
SPDR S&P MIDCAP 400 ETF Trust seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P MidCap 400 Index. MDY has AUM of $20.01 billion. SPDR S&P MIDCAP 400 ETF Trust charges a fee of 23 bps (see: all the Mid Cap ETFs here).
iShares Russell Mid-Cap Value ETF provides exposure to mid-sized U.S. companies that are thought to be undervalued by the market relative to comparable companies and tracks the Russell MidCap Value Index. It has AUM of $14.97 billion. IWS charges a fee of 23 bps.
Schwab U.S. Mid-Cap ETF’s goal is to track as closely as possible, before fees and expenses, the total return of the Dow Jones U.S. Mid-Cap Total Stock Market Index. SCHM has AUM of $9.92 billion and charges a fee of 4 bps.
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Here's Why Mid-Cap ETFs Are Good Bets Amid Market Uncertainties
Investors continue to grapple with the ongoing Russia-Ukraine war uncertainties, resurging COVID-19 cases in China, red-hot inflation levels and the Fed’s aggressive stance on interest rate hikes. However, market participants are now keeping a close eye on the first-quarter earnings season to determine the impact of high inflation levels and the war crisis on corporate America’s earnings forecasts for 2022.
The world’s largest economy is struggling with rising inflation levels. Per the latest Labor Department report, the Consumer Price Index (CPI) jumped 8.5% year over year in March, reaching the highest level since December 1981 (according to a CNBC report). The reading also surpassed the already high Dow Jones estimate of 8.4%. The high inflation level can set the tone for another interest rate hike soon.
The core inflation index, which excludes volatile components such as food and energy prices, rose 6.5% year over year, marking the hottest reading since August 1982 (per a CNBC article).
The recently released FOMC minutes of the March meeting highlighted the central bank’s plans to control the inflation levels by larger interest rate hikes. It also outlined the method and magnitude of reducing the balance sheet holding around $9 trillion in assets. Notably, the Federal Reserve officials have decided to shrink their balance sheet by approximately $95 billion a month. More precisely, the Fed plans to reduce $60 billion in Treasurys and $35 billion in mortgage-backed securities, phasing in over three months, starting May (per a CNBC article).
Meanwhile, the strong labor market and recovering U.S. economy have boosted the positive market sentiments as consumer confidence also improved in March after declining for the first two months of 2022. The Conference Board's measure of consumer confidence index stands at 107.2 in March 2022 versus 105.7 in February. Moreover, March’s reading nominally surpassed the consensus estimate of 107, per a Bloomberg survey of economists. However, the metric continues to be below the pre-pandemic level of 132.6 achieved in February 2020.
The latest encouraging preliminary consumer sentiment readings for early April can also be largely attributed to the improving job market. The University of Michigan’s preliminary consumer sentiment rose to 65.7 in early April from a final reading of 59.4 last month, improving 10.6% over the prior month. The metric surpassed the market forecast of the index, coming in at 59.
March's encouraging U.S. industrial output data can largely be attributed to the improving labor market and easing pandemic conditions. Per the Fed’s recently-released data, total industrial production rose 0.9% in March. A 0.9% rise in the manufacturing output also looked encouraging. There was a 0.4% rise in utility production. Moreover, mining production witnessed a 1.7% uptick, mainly due to strength in the oil and gas sector.
Mid-Cap ETFs to Consider
Considering the mixed sentiments, mid-cap funds are gaining attention as they provide both growth and stability compared to their small-cap and large-cap counterparts. As such, investors seeking to capitalize on the strong fundamentals but worried about uncertainty should consider mid-cap ETFs. Below, we have presented five popular mid-cap ETFs:
Vanguard Mid-Cap ETF (VO - Free Report)
Vanguard Mid-Cap ETF seeks to track the performance of the CRSP US Mid Cap Index, which measures the investment return of mid-capitalization stocks. VO has AUM of $54.93 billion. Vanguard Mid-Cap ETF charges a fee of 4 basis points (bps).
SPDR S&P MIDCAP 400 ETF Trust (MDY - Free Report)
SPDR S&P MIDCAP 400 ETF Trust seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P MidCap 400 Index. MDY has AUM of $20.01 billion. SPDR S&P MIDCAP 400 ETF Trust charges a fee of 23 bps (see: all the Mid Cap ETFs here).
iShares Russell Mid-Cap Value ETF (IWS - Free Report)
iShares Russell Mid-Cap Value ETF provides exposure to mid-sized U.S. companies that are thought to be undervalued by the market relative to comparable companies and tracks the Russell MidCap Value Index. It has AUM of $14.97 billion. IWS charges a fee of 23 bps.
Schwab U.S. Mid-Cap ETF (SCHM - Free Report)
Schwab U.S. Mid-Cap ETF’s goal is to track as closely as possible, before fees and expenses, the total return of the Dow Jones U.S. Mid-Cap Total Stock Market Index. SCHM has AUM of $9.92 billion and charges a fee of 4 bps.