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After a strong start to the year, Wall Street got caught in a nasty web of trading triggered by fears that the Fed would keep raising rates longer than expected. However, any sign of easing inflation and less hawkish comments from Fed officials are expected to drive stocks higher.
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 currently 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) , iShares Russell Mid-Cap ETF (IWR - Free Report) , SPDR Portfolio S&P 400 Mid Cap ETF (SPMD - Free Report) , Vanguard S&P Mid-Cap 400 ETF (IVOO - Free Report) and Invesco S&P MidCap Quality ETF (XMHQ - 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.
Recent rounds of economic data, including jobs, consumer spending and inflation, suggest stronger economic activity and have rekindled worries about a longer-than-expected Fed rate hike. U.S. consumer spending increased the most in nearly two years in January amid a surge in wage gains. U.S. retail sales increased the most in nearly two years in January after two straight monthly declines, pointing to the economy's continued resilience despite higher borrowing costs.
Inflation has also come in hotter than expected. The Federal Reserve’s preferred inflation gauge accelerated in January at its fastest pace since June, an alarming sign that price pressures remain entrenched in the U.S. economy and could lead the Fed to keep raising interest rates well into this year. Earlier this month, per the government report, the consumer price index jumped 0.5% in January following a 0.1% increase in December. It climbed 6.4% year over year, down from a peak of 9.1% in June but far above the Fed’s 2% inflation target (read: PCE Inflation Jumps the Most Since June: 5 ETFs to Play).
The housing market is showing signs of improvement. U.S. builder confidence has risen for the second consecutive month to the highest level since September 2022. Signed contracts to buy existing homes in the United States rose the most since June 2020 in January. After climbing for most of 2022, mortgage rates have been trending downward from a peak in November.
Vanguard Mid-Cap ETF tracks the CRSP US Mid-Cap Index. It holds 349 stocks with a well-diversified portfolio, as each firm holds no more than 0.8% of the total assets. Vanguard Mid-Cap ETF has key holdings in industrials, consumer discretionary, technology, financials and healthcare.
With AUM of $52.6 billion, Vanguard Mid-Cap ETF charges investors 4 bps in fees per year and trades in an average daily volume of 603,000 shares. Vanguard Mid-Cap ETF has a Zacks ETF Rank #1 with a Medium risk outlook.
iShares Russell Mid-Cap ETF follows the Russell MidCap Index and holds 817 stocks in its basket. With AUM of $28.4 billion, it has key holdings in industrials, information technology, financials, consumer discretionary and healthcare that account for double-digit exposure each (read: Higher Spending to Boost Consumer Discretionary ETFs).
iShares Russell Mid-Cap ETF charges investors 18 bps in annual fees and trades in an average daily volume of 1.4 million shares. It has a Zacks ETF Rank #2 with a Medium risk outlook.
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 0.8% 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 $6.2 billion in its asset base while trades in a volume of 616,000 shares per day on average. It charges 5 bps in annual fees and has a Zacks ETF Rank #1.
Vanguard S&P Mid-Cap 400 ETF also offers exposure to broad mid-capitalization stocks. It follows the S&P MidCap 400 Index, holding 401 securities with none accounting for more than 0.8% share. Industrials, financials, consumer discretionary, and information technology are the top four sectors with double-digit exposure each.
Vanguard S&P Mid-Cap 400 ETF has managed $1.6 billion in its asset base and trades in volume of around 37,000 shares a day on average. The ETF charges 10 bps in annual fees and has a Zacks ETF Rank #1 with a Medium risk outlook (read: Is Fed Rate Hike Worry Exaggerated? Top-Ranked ETFs to Play).
Invesco S&P MidCap Quality ETF tracks the S&P MidCap 400 Quality Index, which is a modified market capitalization-weighted index that holds stocks on the S&P Midcap 400 Index with highest quality scores. It holds 81 stocks in its basket, with each making up for no more than 3% of assets. Invesco S&P MidCap Quality ETF has key holdings in industrials, consumer discretionary, information technology and healthcare.
Invesco S&P MidCap Quality ETF has amassed $453.2 million in its asset base and trades in an average dialy volume of 49,000 shares. It charges 25 bps in annual fees.
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Time to Buy Mid-Cap ETFs
After a strong start to the year, Wall Street got caught in a nasty web of trading triggered by fears that the Fed would keep raising rates longer than expected. However, any sign of easing inflation and less hawkish comments from Fed officials are expected to drive stocks higher.
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 currently 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) , iShares Russell Mid-Cap ETF (IWR - Free Report) , SPDR Portfolio S&P 400 Mid Cap ETF (SPMD - Free Report) , Vanguard S&P Mid-Cap 400 ETF (IVOO - Free Report) and Invesco S&P MidCap Quality ETF (XMHQ - 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.
Recent rounds of economic data, including jobs, consumer spending and inflation, suggest stronger economic activity and have rekindled worries about a longer-than-expected Fed rate hike. U.S. consumer spending increased the most in nearly two years in January amid a surge in wage gains. U.S. retail sales increased the most in nearly two years in January after two straight monthly declines, pointing to the economy's continued resilience despite higher borrowing costs.
Inflation has also come in hotter than expected. The Federal Reserve’s preferred inflation gauge accelerated in January at its fastest pace since June, an alarming sign that price pressures remain entrenched in the U.S. economy and could lead the Fed to keep raising interest rates well into this year. Earlier this month, per the government report, the consumer price index jumped 0.5% in January following a 0.1% increase in December. It climbed 6.4% year over year, down from a peak of 9.1% in June but far above the Fed’s 2% inflation target (read: PCE Inflation Jumps the Most Since June: 5 ETFs to Play).
The housing market is showing signs of improvement. U.S. builder confidence has risen for the second consecutive month to the highest level since September 2022. Signed contracts to buy existing homes in the United States rose the most since June 2020 in January. After climbing for most of 2022, mortgage rates have been trending downward from a peak in November.
We have profiled the ETFs below:
Vanguard Mid-Cap ETF (VO - Free Report)
Vanguard Mid-Cap ETF tracks the CRSP US Mid-Cap Index. It holds 349 stocks with a well-diversified portfolio, as each firm holds no more than 0.8% of the total assets. Vanguard Mid-Cap ETF has key holdings in industrials, consumer discretionary, technology, financials and healthcare.
With AUM of $52.6 billion, Vanguard Mid-Cap ETF charges investors 4 bps in fees per year and trades in an average daily volume of 603,000 shares. Vanguard Mid-Cap ETF has a Zacks ETF Rank #1 with a Medium risk outlook.
iShares Russell Mid-Cap ETF (IWR - Free Report)
iShares Russell Mid-Cap ETF follows the Russell MidCap Index and holds 817 stocks in its basket. With AUM of $28.4 billion, it has key holdings in industrials, information technology, financials, consumer discretionary and healthcare that account for double-digit exposure each (read: Higher Spending to Boost Consumer Discretionary ETFs).
iShares Russell Mid-Cap ETF charges investors 18 bps in annual fees and trades in an average daily volume of 1.4 million shares. It has a Zacks ETF Rank #2 with a Medium risk outlook.
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 0.8% 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 $6.2 billion in its asset base while trades in a volume of 616,000 shares per day on average. It charges 5 bps in annual fees and has a Zacks ETF Rank #1.
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 401 securities with none accounting for more than 0.8% share. Industrials, financials, consumer discretionary, and information technology are the top four sectors with double-digit exposure each.
Vanguard S&P Mid-Cap 400 ETF has managed $1.6 billion in its asset base and trades in volume of around 37,000 shares a day on average. The ETF charges 10 bps in annual fees and has a Zacks ETF Rank #1 with a Medium risk outlook (read: Is Fed Rate Hike Worry Exaggerated? Top-Ranked ETFs to Play).
Invesco S&P MidCap Quality ETF (XMHQ - Free Report)
Invesco S&P MidCap Quality ETF tracks the S&P MidCap 400 Quality Index, which is a modified market capitalization-weighted index that holds stocks on the S&P Midcap 400 Index with highest quality scores. It holds 81 stocks in its basket, with each making up for no more than 3% of assets. Invesco S&P MidCap Quality ETF has key holdings in industrials, consumer discretionary, information technology and healthcare.
Invesco S&P MidCap Quality ETF has amassed $453.2 million in its asset base and trades in an average dialy volume of 49,000 shares. It charges 25 bps in annual fees.