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The U.S. stock market has been under pressure this year on concerns over rising inflation and higher interest rates. Notably, the S&P 500 saw the worst start to a year since 1939, plunging more than 19% so far, suggesting that the benchmark is on the brink of a bear market. Against such a backdrop, investors should consider mid-cap stocks in the basket form.
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 are popular ones and have a solid Zacks ETF Rank #1 (Strong Buy) or 2 (Buy), suggesting their outperformance in the months ahead. These include iShares Core S&P Mid-Cap ETF (IJH - Free Report) , Vanguard Mid-Cap Value ETF (VOE - Free Report) , iShares Russell Mid-Cap Value ETF (IWS - Free Report) , Vanguard Mid-Cap Growth ETF (VOT - Free Report) and SPDR Portfolio S&P 400 Mid Cap ETF (SPMD - 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 the large and small-cap counterparts in turbulent times. Additionally, these are less volatile than the small caps.
Market Trends
In its latest FOMC meeting, the Federal Reserve took the most aggressive policy action in decades to combat soaring inflation. Fed Chair Jerome Powell raised interest rates by 50 bps, pushing the benchmark above 0.75%. The hike marks the biggest interest-rate increase since 2000. The central bank also signaled that it would keep hiking at the same pace over the next couple of meetings (read: 6 Dividend ETFs Up At Least 6% YTD & Yielding At Least 3%).
The Fed will also reduce its huge $9 trillion balance sheet, which consists mainly of Treasury and mortgage bonds, starting from June. Overall, an increase in interest rates means higher loan rates for consumers and businesses, including mortgages, credit cards and auto loans.
Additionally, COVID-19 variant concerns and the resultant lockdown measures in China have sparked worries over global economic expansion that will continue to weigh on investors’ sentiment. Further, a war in Ukraine worsened disruptions in the flow of goods across borders, resulting in skyrocketing food and energy prices, and threatening corporate profits.
The U.S. economy shrank for the first time since the outbreak of the pandemic. GDP dropped 1.4% annually in the first quarter of 2022, marking a sharp reversal from 6.9% annual growth in the fourth quarter (read: U.S. Economy Shrinks in Q1: ETFs to Win/Lose).
However, the initial phase of the rate increase will be good for stocks as it will reflect an improving economy. Higher interest rates usually indicate a healthy economy, leading to greater consumer power and increased IT spending.
iShares Core S&P Mid-Cap ETF is the most-popular fund in the mid-cap space, with AUM of $58.4 billion and an average daily volume of 1.7 million shares. It tracks the S&P MidCap 400 Index and holds 403 stocks in its basket. Industrials, financials, consumer discretionary and information technology are the top four sectors with double-digit exposure each.
iShares Core S&P Mid-Cap ETF charges 5 bps in annual fees and 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 208 stocks in its basket, with each accounting for less than 1.5% of assets. Financials, consumer discretionary, real estate, industrials and utilities are the top five sectors with double-digit exposure each (read: Why Value ETFs May Outdo Growth for the Rest of 2022).
Vanguard Mid-Cap Value ETF has amassed $15.8 billion and trades in an average daily volume of 494,000 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 billion, it has key holdings in financials, industrials and real estate that accounts for double-digit exposure each.
IWS charges investors 23 bps in annual fees and trades in an average daily volume of 650,000 shares. It has a Zacks ETF Rank #1.
Vanguard Mid-Cap Growth ETF offers exposure to mid-capitalization growth stocks. It follows the CRSP US Mid Cap Growth Index, holding 182 securities with none accounting for more than 1.5% share. Technology takes the largest share at 25.4%, while industrials, healthcare and consumer discretionary round off the top three with double-digit exposure each.
Vanguard Mid-Cap Growth ETF has managed $9.2 billion in its asset base and trades in good volume of around 239,000 shares a day on average. The ETF charges 7 bps in annual fees and 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 400 stocks in its basket, with each accounting for no more than 0.8% 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 $4.8 billion in its asset base while trades in a volume of 1.2 million shares per day on average. It has a Zacks ETF Rank #2.
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5 Top-Ranked Mid-Cap ETFs to Buy Now
The U.S. stock market has been under pressure this year on concerns over rising inflation and higher interest rates. Notably, the S&P 500 saw the worst start to a year since 1939, plunging more than 19% so far, suggesting that the benchmark is on the brink of a bear market. Against such a backdrop, investors should consider mid-cap stocks in the basket form.
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 are popular ones and have a solid Zacks ETF Rank #1 (Strong Buy) or 2 (Buy), suggesting their outperformance in the months ahead. These include iShares Core S&P Mid-Cap ETF (IJH - Free Report) , Vanguard Mid-Cap Value ETF (VOE - Free Report) , iShares Russell Mid-Cap Value ETF (IWS - Free Report) , Vanguard Mid-Cap Growth ETF (VOT - Free Report) and SPDR Portfolio S&P 400 Mid Cap ETF (SPMD - 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 the large and small-cap counterparts in turbulent times. Additionally, these are less volatile than the small caps.
Market Trends
In its latest FOMC meeting, the Federal Reserve took the most aggressive policy action in decades to combat soaring inflation. Fed Chair Jerome Powell raised interest rates by 50 bps, pushing the benchmark above 0.75%. The hike marks the biggest interest-rate increase since 2000. The central bank also signaled that it would keep hiking at the same pace over the next couple of meetings (read: 6 Dividend ETFs Up At Least 6% YTD & Yielding At Least 3%).
The Fed will also reduce its huge $9 trillion balance sheet, which consists mainly of Treasury and mortgage bonds, starting from June. Overall, an increase in interest rates means higher loan rates for consumers and businesses, including mortgages, credit cards and auto loans.
Additionally, COVID-19 variant concerns and the resultant lockdown measures in China have sparked worries over global economic expansion that will continue to weigh on investors’ sentiment. Further, a war in Ukraine worsened disruptions in the flow of goods across borders, resulting in skyrocketing food and energy prices, and threatening corporate profits.
The U.S. economy shrank for the first time since the outbreak of the pandemic. GDP dropped 1.4% annually in the first quarter of 2022, marking a sharp reversal from 6.9% annual growth in the fourth quarter (read: U.S. Economy Shrinks in Q1: ETFs to Win/Lose).
However, the initial phase of the rate increase will be good for stocks as it will reflect an improving economy. Higher interest rates usually indicate a healthy economy, leading to greater consumer power and increased IT spending.
We have profiled the ETFs below:
iShares Core S&P Mid-Cap ETF (IJH - Free Report)
iShares Core S&P Mid-Cap ETF is the most-popular fund in the mid-cap space, with AUM of $58.4 billion and an average daily volume of 1.7 million shares. It tracks the S&P MidCap 400 Index and holds 403 stocks in its basket. Industrials, financials, consumer discretionary and information technology are the top four sectors with double-digit exposure each.
iShares Core S&P Mid-Cap ETF charges 5 bps in annual fees and 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 208 stocks in its basket, with each accounting for less than 1.5% of assets. Financials, consumer discretionary, real estate, industrials and utilities are the top five sectors with double-digit exposure each (read: Why Value ETFs May Outdo Growth for the Rest of 2022).
Vanguard Mid-Cap Value ETF has amassed $15.8 billion and trades in an average daily volume of 494,000 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 billion, it has key holdings in financials, industrials and real estate that accounts for double-digit exposure each.
IWS charges investors 23 bps in annual fees and trades in an average daily volume of 650,000 shares. It has a Zacks ETF Rank #1.
Vanguard Mid-Cap Growth ETF (VOT - Free Report)
Vanguard Mid-Cap Growth ETF offers exposure to mid-capitalization growth stocks. It follows the CRSP US Mid Cap Growth Index, holding 182 securities with none accounting for more than 1.5% share. Technology takes the largest share at 25.4%, while industrials, healthcare and consumer discretionary round off the top three with double-digit exposure each.
Vanguard Mid-Cap Growth ETF has managed $9.2 billion in its asset base and trades in good volume of around 239,000 shares a day on average. The ETF charges 7 bps in annual fees and 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 400 stocks in its basket, with each accounting for no more than 0.8% 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 $4.8 billion in its asset base while trades in a volume of 1.2 million shares per day on average. It has a Zacks ETF Rank #2.