Following the best month in decades, Wall Street has extended its bull run to start September with the S&P 500 and the Nasdaq Composite Index hitting new highs. This is primarily being driven by encouraging economic data and moderating COVID-19 infections.
In particular, U.S. manufacturing activity jumped to a nearly two-year high in August while factory orders rose for the third consecutive month in July. The upbeat data indicates that the American economy is gradually returning to the pre-pandemic level, bolstering confidence in the stock market. Additionally, the housing market has been firing on all cylinders thanks to tumbling mortgage rates and higher demand for new homes (read: 6 Reasons Why Homebuilding ETFs Are a Strong Buy).
Further, the combination of progress in a treatment or vaccine for COVID-19, the prospects of a prolonged low-interest-rate environment and hopes of additional stimulus have been fueling a rally.
While the solid trend should prevail, election uncertainty and the historically weak September would dampen sentiments. This is especially true, as the S&P 500 has fallen about 1% on average in September since 1950 per the LPL Financial data. It also revealed that the S&P 500 has shed 0.2% on average in the election year. This election year could be worse given that the COVID-19 pandemic continues to rage globally. Since World War II, the S&P 500 has seen an average decline of 0.5%, according to CFRA (read: Key ETF Areas to Track as Biden Victory Looks Quite Likely).
The declines are due to a seasonal phenomenon as investors are more prone to selling than buying when they return from their summer vacations, trading volume after Labor Day is mostly bearish, many mutual funds have fiscal years ending Sep 30, window-dressing is rampant, and investors generally sell stocks to pay tuition bills for their kids’ private schools and colleges.
Against such a backdrop, investors seeking to capitalize on the bullish fundamentals but worried about historical underperformance of the stocks this month should consider mid-cap stocks in the basket form (read: Here's Why Mid-Cap ETFs Could Make for a Safer Bet Now).
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. In fact, these securities are safer options and have the potential to move higher than the large and small-cap counterparts in turbulent times. Further, mid-cap stocks are less volatile than small caps (see: all the Mid Cap ETFs here).
While there are several ETFs available in the space, we have highlighted some solid choices that hit a new 52-week high in the latest trading session and have a strong Zacks ETF Rank #1 (Strong Buy) or 2 (Buy), suggesting outperformance. These have potentially superior weighting methodologies that could allow them to lead the mid-cap space in the months ahead.
Invesco S&P MidCap Momentum ETF (XMMO - Free Report)
This ETF follows the S&P Midcap 400 Momentum Index, which is designed to identify mid-cap firms having the highest momentum scores. It holds 74 stocks in its basket with key holdings in information technology, industrials, consumer discretionary, healthcare and real estate. The fund has AUM of $692.3 million and charges 39 bps in annual fees. It has a Zacks ETF Rank #1 (read: ETF Strategies to Play Market Optimism Amid Coronavirus Crisis).
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 AUM of $362.4 million. Information technology and healthcare take the largest share at 25.9% and 23.4%, respectively, of the portfolio in terms of sector allocation while consumer discretionary and industrials round off the next two spots with a double-digit allocation each. The fund has a Zacks ETF Rank #1.
iShares S&P Mid-Cap 400 Growth ETF (IJK - Free Report)
This product also targets the growth segment of the mid-cap space and follows the S&P MidCap 400 Growth Index. With AUM of $6.9 billion, it holds a basket of 242 stocks with information technology, industrials, consumer discretionary and health care taking double-digit exposure each. IJK charges investors 24 bps in annual fees and has a Zacks ETF Rank #1.
iShares Russell Mid-Cap Growth ETF (IWP - Free Report)
With AUM of $13.6 billion, this ETF offers exposure to mid-sized U.S. companies whose earnings are expected to grow at an above-average rate relative to the market by tracking the Russell MidCap Growth Index. It holds 329 securities in its basket with key holdings in information technology and healthcare. The product charges 24 bps in annual fees 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 242 stocks in its basket. Information technology is the top sector with 20.9% of the assets, while industrials, consumer discretionary, and healthcare round off the next three with double-digit exposure each. MDYG has amassed $1.8 billion in its asset base and charges 15 bps in annual fees. It has a Zacks ETF Rank #1.
iShares Morningstar Mid-Cap Growth ETF (JKH - Free Report)
This product tracks the Morningstar Mid Growth Index and holds 161 securities in its basket. Information technology takes the largest share at 40.5% while health care and industrials also receive double-digit exposure each. The fund charges 30 bps in annual fees. It has amassed $1.2 billion and has a Zacks ETF Rank #2 (read: 5 Growth ETFs & Stocks to Ride the Market Rally).
Vanguard Mid-Cap Growth ETF (VOT - Free Report)
This fund follows the CRSP US Mid Cap Growth Index, holding 162 securities with key holdings in technology, industrials, financials and health care. It has managed $8.6 billion in its asset base and charges 7 bps in annual fees. The product has a Zacks ETF Rank #1.
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