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After a strong rebound in the U.S. stock market last month, the momentum seems to have decelerated in the past week with no U.S.-China trade deal in sight and return of global slowdown concerns, especially after European Commission (EU) slashed economic growth forecast for the Eurozone.
EU cut growth forecast for the Eurozone, comprising 19 countries that use euro, to 1.3% from the previous projection of 1.9%, citing sharp deterioration in global trade and China’s slowdown. Meanwhile, the Bank of England warned that the economy is on track for the weakest growth this year since the global financial crisis given Brexit uncertainty. Chinese factory activity also contracted for the second consecutive month in January, indicating further cooling of the economy and heightened the risk of global slowdown (read: Worried About European Growth? Play These 5 ETFs).
U.S. and China officials are expected to start a new round of negotiation this week and have to finalize the agreement before the Mar 1 deadline. If no deal is reached by then, Donald Trump has threatened to more than double the rate of tariffs on $200 billion in Chinese imports.
Another government shutdown is also weighing on the stocks. Though U.S. lawmakers reached a tentative deal to avert a second government shutdown, it does not contain the $5.7 billion for a wall on the U.S.-Mexico border that President Donald Trump demanded. As such, there is uncertainty about whether the Republican president will sign the agreement. The deal includes $1.37 billion for erecting new fencing along the southern border, the same amount Congress allocated last year and far below what Trump has demanded.
Weakening economies in China and Europe coupled with a looming trade tensions remains an overhang on a strong U.S. economy backed by strong labor market, higher consumer confidence and increasing consumer spending.
In such a scenario, investors seeking to capitalize on the strong fundamentals, but worried about uncertainty, should consider mid-cap stocks in the basket form. In fact, the ultra-popular large-cap ETF (SPY - Free Report) shed 0.5% over the past week while small-cap ETF (IWM - Free Report) added 0.09%. The mid-cap ETF (IJH - Free Report) outperformed, having gained 0.4% in a week.
Why Mid-Caps?
While large companies are normally known for stability and the smaller ones for growth, mid-caps offer the best of both worlds, allowing growth and stability in portfolios simultaneously. Additionally, these middle-of-road securities have relatively less exposure to international markets compared to large caps, thereby making them good bets in the current market turmoil. Further, mid-cap stocks are less volatile than small caps. Thus, these stocks are currently a safer option and have higher upside potential.
While there are several ETFs available in the space, we have highlighted five that have outperformed over the past week and have a strong Zacks ETF Rank #1 (Strong Buy) or 2 (Buy) with a Medium risk outlook, suggesting outperformance in the months ahead. These have potentially superior weighting methodologies that could allow these to lead the mid-cap space in the months ahead.
Additionally, these funds are popular and liquid enough, making compelling choices for investors seeking a nice momentum play with lower risk (see: all the Mid Cap ETFs here):
Invesco Russell MidCap Pure Growth ETF
This fund targets the growth segment of the mid-cap space by tracking the Russell Midcap Pure Growth Index. It holds 96 securities in its portfolio, with none accounting for more than 2.81% of assets. From a sector perspective, information technology occupies the top position at 44.3%, while consumer discretionary (20.7%), healthcare (14.8%) and industrials (10.7%) round off the next three spots. The fund has AUM of $356.4 million and average daily volume of about 90,000 shares. It charges 39 bps in annual fees and has gained about 1.6% in a week. PXMG has a Zacks ETF Rank #2 (read: 10 Top-Ranked ETFs That Crushed the Market in 2018).
First Trust Mid Cap Growth AlphaDEX Fund (FNY - Free Report)
This ETF follows the NASDAQ AlphaDEX Mid Cap Growth Index, charging investors 70 bps in annual fees. It holds well-diversified 225 stocks, with none accounting for more than 0.9% of the assets. Information technology takes 21% of the portfolio in terms of sector allocation while healthcare, consumer discretionary, industrials and financials round off the next four spots with a double-digit allocation each. The fund has amassed $222.7 million and trades in average daily volume of 50,000 shares. It has gained 0.9% in a week and has a Zacks ETF Rank #1.
iShares Morningstar Mid-Cap Growth ETF
With AUM of $386.4 million, this product tracks the Morningstar Mid Growth Index and holds 200 mid cap securities, with none accounting for more than 1.5% of assets. Information technology takes the largest share at 29.6% while health care, industrials and consumer discretionary also receive double-digit exposure each. The ETF charges 30 bps in annual fees and trades in a volume of about 12,000 shares a day. It has added 0.9% in a week and has a Zacks ETF Rank #1.
This ETF tracks the S&P MidCap 400 Pure Growth Index, charging investors 20 bps in fees per year. It has amassed $709.3 million in its asset base while seeing a volume of about 23,000 shares per day on average. The fund holds 241 stocks with a well-diversified portfolio as each firm holds no more than 1.5% of total assets. Information technology is the top sector with 19.5% share while healthcare, industrials, consumer discretionary and real estate round of the top five. The ETF has gained 0.7% in a week and has a Zacks ETF Rank #1.
This ETF follows the S&P Mid Cap 400 Growth Index, holding 240 stocks in its basket. It is widely diversified across components with each accounting for less than 1.5% share. Information technology is the top sector with 20.5% of assets, while healthcare, industrials, consumer discretionary and real estate also receive a double-digit exposure each. MDYG has $1.3 billion in AUM and trades in volume of around 178,000 shares a day on average. It charges 15 bps in annual fees and has added 0.7% in a week. The fund has a Zacks ETF Rank #2 (read: Winning ETF Strategies for 2019).
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Why Should You Buy Mid-Cap ETFs Now?
After a strong rebound in the U.S. stock market last month, the momentum seems to have decelerated in the past week with no U.S.-China trade deal in sight and return of global slowdown concerns, especially after European Commission (EU) slashed economic growth forecast for the Eurozone.
EU cut growth forecast for the Eurozone, comprising 19 countries that use euro, to 1.3% from the previous projection of 1.9%, citing sharp deterioration in global trade and China’s slowdown. Meanwhile, the Bank of England warned that the economy is on track for the weakest growth this year since the global financial crisis given Brexit uncertainty. Chinese factory activity also contracted for the second consecutive month in January, indicating further cooling of the economy and heightened the risk of global slowdown (read: Worried About European Growth? Play These 5 ETFs).
U.S. and China officials are expected to start a new round of negotiation this week and have to finalize the agreement before the Mar 1 deadline. If no deal is reached by then, Donald Trump has threatened to more than double the rate of tariffs on $200 billion in Chinese imports.
Another government shutdown is also weighing on the stocks. Though U.S. lawmakers reached a tentative deal to avert a second government shutdown, it does not contain the $5.7 billion for a wall on the U.S.-Mexico border that President Donald Trump demanded. As such, there is uncertainty about whether the Republican president will sign the agreement. The deal includes $1.37 billion for erecting new fencing along the southern border, the same amount Congress allocated last year and far below what Trump has demanded.
Weakening economies in China and Europe coupled with a looming trade tensions remains an overhang on a strong U.S. economy backed by strong labor market, higher consumer confidence and increasing consumer spending.
In such a scenario, investors seeking to capitalize on the strong fundamentals, but worried about uncertainty, should consider mid-cap stocks in the basket form. In fact, the ultra-popular large-cap ETF (SPY - Free Report) shed 0.5% over the past week while small-cap ETF (IWM - Free Report) added 0.09%. The mid-cap ETF (IJH - Free Report) outperformed, having gained 0.4% in a week.
Why Mid-Caps?
While large companies are normally known for stability and the smaller ones for growth, mid-caps offer the best of both worlds, allowing growth and stability in portfolios simultaneously. Additionally, these middle-of-road securities have relatively less exposure to international markets compared to large caps, thereby making them good bets in the current market turmoil. Further, mid-cap stocks are less volatile than small caps. Thus, these stocks are currently a safer option and have higher upside potential.
While there are several ETFs available in the space, we have highlighted five that have outperformed over the past week and have a strong Zacks ETF Rank #1 (Strong Buy) or 2 (Buy) with a Medium risk outlook, suggesting outperformance in the months ahead. These have potentially superior weighting methodologies that could allow these to lead the mid-cap space in the months ahead.
Additionally, these funds are popular and liquid enough, making compelling choices for investors seeking a nice momentum play with lower risk (see: all the Mid Cap ETFs here):
Invesco Russell MidCap Pure Growth ETF
This fund targets the growth segment of the mid-cap space by tracking the Russell Midcap Pure Growth Index. It holds 96 securities in its portfolio, with none accounting for more than 2.81% of assets. From a sector perspective, information technology occupies the top position at 44.3%, while consumer discretionary (20.7%), healthcare (14.8%) and industrials (10.7%) round off the next three spots. The fund has AUM of $356.4 million and average daily volume of about 90,000 shares. It charges 39 bps in annual fees and has gained about 1.6% in a week. PXMG has a Zacks ETF Rank #2 (read: 10 Top-Ranked ETFs That Crushed the Market in 2018).
First Trust Mid Cap Growth AlphaDEX Fund (FNY - Free Report)
This ETF follows the NASDAQ AlphaDEX Mid Cap Growth Index, charging investors 70 bps in annual fees. It holds well-diversified 225 stocks, with none accounting for more than 0.9% of the assets. Information technology takes 21% of the portfolio in terms of sector allocation while healthcare, consumer discretionary, industrials and financials round off the next four spots with a double-digit allocation each. The fund has amassed $222.7 million and trades in average daily volume of 50,000 shares. It has gained 0.9% in a week and has a Zacks ETF Rank #1.
iShares Morningstar Mid-Cap Growth ETF
With AUM of $386.4 million, this product tracks the Morningstar Mid Growth Index and holds 200 mid cap securities, with none accounting for more than 1.5% of assets. Information technology takes the largest share at 29.6% while health care, industrials and consumer discretionary also receive double-digit exposure each. The ETF charges 30 bps in annual fees and trades in a volume of about 12,000 shares a day. It has added 0.9% in a week and has a Zacks ETF Rank #1.
Vanguard S&P Mid-Cap 400 Growth ETF (IVOG - Free Report)
This ETF tracks the S&P MidCap 400 Pure Growth Index, charging investors 20 bps in fees per year. It has amassed $709.3 million in its asset base while seeing a volume of about 23,000 shares per day on average. The fund holds 241 stocks with a well-diversified portfolio as each firm holds no more than 1.5% of total assets. Information technology is the top sector with 19.5% share while healthcare, industrials, consumer discretionary and real estate round of the top five. The ETF has gained 0.7% in a week and has a Zacks ETF Rank #1.
SPDR S&P 400 Mid Cap Growth ETF (MDYG - Free Report)
This ETF follows the S&P Mid Cap 400 Growth Index, holding 240 stocks in its basket. It is widely diversified across components with each accounting for less than 1.5% share. Information technology is the top sector with 20.5% of assets, while healthcare, industrials, consumer discretionary and real estate also receive a double-digit exposure each. MDYG has $1.3 billion in AUM and trades in volume of around 178,000 shares a day on average. It charges 15 bps in annual fees and has added 0.7% in a week. The fund has a Zacks ETF Rank #2 (read: Winning ETF Strategies for 2019).
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>