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Mid-Cap ETFs Set to Outperform in a See-Saw Market
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After the first back-to-back monthly gains since 2021, Wall Street is again caught in a nasty web of trading triggered by the Federal Reserve’s uncertain rate outlook. Investors fretted over the Fed’s rate hikes and further talk of a looming recession after the solid economic data. However, strong historical performance and a Santa Claus rally could unleash a rise in the stocks at December-end, which has proved to be a strong month for the stock market over the past 70 years. A Santa Claus rally refers to the increase in stock prices in the final week of the calendar year (i.e. between Christmas and New Year’s Day) that extends into the first two days of the New Year.
Amid such a scenario, mid-cap investment seems a prudent choice. While large companies are normally known for stability and the smaller ones for growth, mid-caps offer the best of both worlds, simultaneously allowing growth and stability in a portfolio. While there are several ETFs available in the space, we have highlighted some solid choices that have shown momentum in a month and have a solid Zacks ETF Rank #1 (Strong Buy) or 2 (Buy), suggesting their outperformance in the months ahead as well.
These include Vanguard Mid-Cap ETF (VO - Free Report) , Vanguard Mid-Cap Value ETF (VOE - Free Report) , iShares Russell Mid-Cap Value ETF (IWS - Free Report) , SPDR Portfolio S&P 400 Mid Cap ETF (SPMD - Free Report) and Vanguard S&P Mid-Cap 400 ETF (IVOO - Free Report) . These have potentially superior weighting methodologies that could allow them to lead the mid-cap space in the months ahead. Mid-cap ETFs are safer options and have the potential to move higher than their large and small-cap counterparts in turbulent times. Additionally, these are less volatile than the small caps.
Market Trends
Per Dow Jones Market Data, the S&P 500 has risen 73% in December since 1928 and gained 1.4% on average, while the Dow Jones has risen 71% in the month since 1896, with an average 1.4% return. The Russell 2000 has gained ground in December by 83% since 1987. The average return in that month is 2.8%, better than any other month. The tech-heavy Nasdaq Composite index has risen 61% of the time since 1971 for an average gain of 1.7% (read: 5 Top-Ranked ETFs to Buy for December).
According to data from investment research firm CFRA, the S&P 500 has gained an average of 1.6% during December, the highest average of any month and more than double the 0.7% gain of all months.
The solid gains will likely come from fund managers’ buying stocks that have outperformed over the year for so-called "window dressing" of their portfolios, the year-end inflows and lower liquidity during holiday-shortened weeks. However, the bouts of latest data — hotter-than-expected ISM services and stronger jobs — have put a damper on hopes that the Federal Reserve would ease the pace of its interest rate hikes amid recent signs of ebbing inflation. This has led to risk-off trading lately.
The economy added 263,000 jobs in November, marking another strong month of job growth. The unemployment rate remained at 3.7%, close to a 50-year low, while average hourly earnings jumped 0.6% from the prior month and 5.1% from the year-ago month. Higher wages will add to higher inflation. Meanwhile, business activity jumped the most since March 2021 in November, suggesting that the largest part of the economy remains resilient. The Institute for Supply Management’s gauge of services rose to 56.5 last month from 54.4 in October (read: 4 Sector ETFs to Play Upbeat November Jobs Data).
Vanguard Mid-Cap ETF targets the mid-cap segment of the broad stock market and tracks the CRSP US Mid-Cap Index. It holds 357 stocks with a well-diversified portfolio, as each firm holds no more than 1% of the total assets. Vanguard Mid-Cap ETF has key holdings in industrials, technology, consumer discretionary, financials and healthcare.
With AUM of $51 billion, Vanguard Mid-Cap ETF charges investors 4 bps in fees per year and trades in an average daily volume of 692,000 shares. Vanguard Mid-Cap ETF has a Zacks ETF Rank #2 with a Medium risk outlook.
Vanguard Mid-Cap Value ETF follows the CRSP US Mid Cap Value Index, which measures the investment return of mid-capitalization value stocks. It holds 197 stocks in its basket, with each accounting for less than 1.6% of assets. Financials, consumer discretionary, utilities, industrials and real estate are the top five sectors with double-digit exposure each.
Vanguard Mid-Cap Value ETF has amassed $16.4 billion and trades in an average daily volume of 506,000 shares. It charges 7 bps in fees per year and has a Zacks ETF Rank #1.
iShares Russell Mid-Cap Value ETF follows the Russell MidCap Value Index and holds 697 stocks in its basket. With AUM of $13.4 billion, it has key holdings in financials, industrials, real estate and consumer discretionary that account for double-digit exposure each (read: October Marks Best Month for Value ETFs Since 1978: Top Funds).
IWS charges investors 23 bps in annual fees and trades in an average daily volume of 607,000 shares. It has a Zacks ETF Rank #2.
SPDR Portfolio S&P 400 Mid Cap ETF targets the broad mid-cap segment of the broad U.S. market. It tracks the S&P MidCap 400 Index and holds 401 stocks in its basket, with each accounting for no more than 0.9% share. Industrials , financials, consumer discretionary and information technology are the top four sectors with a double-digit allocation each.
SPDR Portfolio S&P 400 Mid Cap ETF has accumulated $5.5 billion in its asset base while trades in a volume of 790,000 shares per day on average. It charges 5 bps in annual fees and has a Zacks ETF Rank #2.
Vanguard S&P Mid-Cap 400 ETF also offers exposure to broad mid-capitalization stocks. It follows the S&P MidCap 400 Index, holding 402 securities with none accounting for more than 0.8% share. Industrials, financials, consumer discretionary, information technology and healthcare are the top five sectors with double-digit exposure each.
Vanguard S&P Mid-Cap 400 ETF has managed $1.4 billion in its asset base and trades in volume of around 30,000 shares a day on average. The ETF charges 10 bps in annual fees and has a Zacks ETF Rank #2.
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Mid-Cap ETFs Set to Outperform in a See-Saw Market
After the first back-to-back monthly gains since 2021, Wall Street is again caught in a nasty web of trading triggered by the Federal Reserve’s uncertain rate outlook. Investors fretted over the Fed’s rate hikes and further talk of a looming recession after the solid economic data. However, strong historical performance and a Santa Claus rally could unleash a rise in the stocks at December-end, which has proved to be a strong month for the stock market over the past 70 years. A Santa Claus rally refers to the increase in stock prices in the final week of the calendar year (i.e. between Christmas and New Year’s Day) that extends into the first two days of the New Year.
Amid such a scenario, mid-cap investment seems a prudent choice. While large companies are normally known for stability and the smaller ones for growth, mid-caps offer the best of both worlds, simultaneously allowing growth and stability in a portfolio. While there are several ETFs available in the space, we have highlighted some solid choices that have shown momentum in a month and have a solid Zacks ETF Rank #1 (Strong Buy) or 2 (Buy), suggesting their outperformance in the months ahead as well.
These include Vanguard Mid-Cap ETF (VO - Free Report) , Vanguard Mid-Cap Value ETF (VOE - Free Report) , iShares Russell Mid-Cap Value ETF (IWS - Free Report) , SPDR Portfolio S&P 400 Mid Cap ETF (SPMD - Free Report) and Vanguard S&P Mid-Cap 400 ETF (IVOO - Free Report) . These have potentially superior weighting methodologies that could allow them to lead the mid-cap space in the months ahead. Mid-cap ETFs are safer options and have the potential to move higher than their large and small-cap counterparts in turbulent times. Additionally, these are less volatile than the small caps.
Market Trends
Per Dow Jones Market Data, the S&P 500 has risen 73% in December since 1928 and gained 1.4% on average, while the Dow Jones has risen 71% in the month since 1896, with an average 1.4% return. The Russell 2000 has gained ground in December by 83% since 1987. The average return in that month is 2.8%, better than any other month. The tech-heavy Nasdaq Composite index has risen 61% of the time since 1971 for an average gain of 1.7% (read: 5 Top-Ranked ETFs to Buy for December).
According to data from investment research firm CFRA, the S&P 500 has gained an average of 1.6% during December, the highest average of any month and more than double the 0.7% gain of all months.
The solid gains will likely come from fund managers’ buying stocks that have outperformed over the year for so-called "window dressing" of their portfolios, the year-end inflows and lower liquidity during holiday-shortened weeks. However, the bouts of latest data — hotter-than-expected ISM services and stronger jobs — have put a damper on hopes that the Federal Reserve would ease the pace of its interest rate hikes amid recent signs of ebbing inflation. This has led to risk-off trading lately.
The economy added 263,000 jobs in November, marking another strong month of job growth. The unemployment rate remained at 3.7%, close to a 50-year low, while average hourly earnings jumped 0.6% from the prior month and 5.1% from the year-ago month. Higher wages will add to higher inflation. Meanwhile, business activity jumped the most since March 2021 in November, suggesting that the largest part of the economy remains resilient. The Institute for Supply Management’s gauge of services rose to 56.5 last month from 54.4 in October (read: 4 Sector ETFs to Play Upbeat November Jobs Data).
We have profiled the ETFs below:
Vanguard Mid-Cap ETF (VO - Free Report)
Vanguard Mid-Cap ETF targets the mid-cap segment of the broad stock market and tracks the CRSP US Mid-Cap Index. It holds 357 stocks with a well-diversified portfolio, as each firm holds no more than 1% of the total assets. Vanguard Mid-Cap ETF has key holdings in industrials, technology, consumer discretionary, financials and healthcare.
With AUM of $51 billion, Vanguard Mid-Cap ETF charges investors 4 bps in fees per year and trades in an average daily volume of 692,000 shares. Vanguard Mid-Cap ETF has a Zacks ETF Rank #2 with a Medium risk outlook.
Vanguard Mid-Cap Value ETF (VOE - Free Report)
Vanguard Mid-Cap Value ETF follows the CRSP US Mid Cap Value Index, which measures the investment return of mid-capitalization value stocks. It holds 197 stocks in its basket, with each accounting for less than 1.6% of assets. Financials, consumer discretionary, utilities, industrials and real estate are the top five sectors with double-digit exposure each.
Vanguard Mid-Cap Value ETF has amassed $16.4 billion and trades in an average daily volume of 506,000 shares. It charges 7 bps in fees per year and has a Zacks ETF Rank #1.
iShares Russell Mid-Cap Value ETF (IWS - Free Report)
iShares Russell Mid-Cap Value ETF follows the Russell MidCap Value Index and holds 697 stocks in its basket. With AUM of $13.4 billion, it has key holdings in financials, industrials, real estate and consumer discretionary that account for double-digit exposure each (read: October Marks Best Month for Value ETFs Since 1978: Top Funds).
IWS charges investors 23 bps in annual fees and trades in an average daily volume of 607,000 shares. It has a Zacks ETF Rank #2.
SPDR Portfolio S&P 400 Mid Cap ETF (SPMD - Free Report)
SPDR Portfolio S&P 400 Mid Cap ETF targets the broad mid-cap segment of the broad U.S. market. It tracks the S&P MidCap 400 Index and holds 401 stocks in its basket, with each accounting for no more than 0.9% share. Industrials , financials, consumer discretionary and information technology are the top four sectors with a double-digit allocation each.
SPDR Portfolio S&P 400 Mid Cap ETF has accumulated $5.5 billion in its asset base while trades in a volume of 790,000 shares per day on average. It charges 5 bps in annual fees and has a Zacks ETF Rank #2.
Vanguard S&P Mid-Cap 400 ETF (IVOO - Free Report)
Vanguard S&P Mid-Cap 400 ETF also offers exposure to broad mid-capitalization stocks. It follows the S&P MidCap 400 Index, holding 402 securities with none accounting for more than 0.8% share. Industrials, financials, consumer discretionary, information technology and healthcare are the top five sectors with double-digit exposure each.
Vanguard S&P Mid-Cap 400 ETF has managed $1.4 billion in its asset base and trades in volume of around 30,000 shares a day on average. The ETF charges 10 bps in annual fees and has a Zacks ETF Rank #2.