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Time for Mid-Cap Value ETFs to Capitalize on "Rolling Expansion"?
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While many Wall Street analysts were expecting a soft landing in the U.S. economy hurt by high inflation and rates, the latest view is that “rolling recession’ is turning into ‘rolling expansion,’ per a top Wall Street economist, as quoted on MarketWatch.
So far this year, U.S. small-cap stocks have shown decent trends but have lagged the S&P 500 (up about 15.8%). The small-cap Russell 2000, an index tracking U.S. small-cap stocks, saw modest gains of around 7.2% in the first half of 2023. The S&P 600 small-cap ETF (SLY) offered a muted performance of 4% in 1H. The best-performing small-cap ETF of this year is Motley Fool Small-Cap Growth ETF (TMFS - Free Report) (up 14.9%) (as of Jul 7, 2023) (read: 4 Small-Cap ETFs Beating the S&P 500 in 1H).
The U.S. economy has been showing better growth prospects than initially thought, which is a winning case for small-cap stocks as smaller companies are allied to the domestic economy. But higher rates and the failure of three regional banks in the first quarter of the year are huge concerns for the segment.
Why Mid Caps Better Bets?
In comparison, mid-cap ETF Invesco S&P MidCap Quality ETF (XMHQ - Free Report) is up about 15% this year. Mid caps offer the best of both worlds. While large companies are normally known for stability and the smaller ones are known for growth, mid caps are arguably safer options for considerable growth with lesser risk than their small-cap counterparts.
The U.S. economy grew by an annualized 2% on quarter in Q1 of 2023, breezing past 1.3% in the second estimate, and forecasts of 1.4%. Consumer spending growth accelerated more than expected to 4.2%, the highest in nearly two years.
The global economy, too, has started to improve, but the recovery still remains weak, according to the OECD's latest Economic Outlook. The Economic Outlook projects a moderation of global GDP growth from 3.3% in 2022 to 2.7% in 2023, followed by a rebound to 2.9% in 2024.
In 2022, total global retail sales (online and offline retail) amounted to around $25.8 trillion, which is expected to reach $32.0 billion, at a CAGR of 6%. Meanwhile, U.S. retail sales unexpectedly rose 0.3% sequentially in May 2023, following a 0.4% increase in April and beating forecasts of a 0.1% decline.
Mid caps are the best bets to capture the improvement in both U.S. and global economy. The capitalization has moderate exposure to both areas. Moreover, with the Fed likely to hike rates this month, interest rates are on an uptrend. Notably, value ETFs perform better in a rising rate environment.
ETFs to Tap
Against this backdrop, below, we highlight a few top-ranked mid-cap value ETFs that could be good bets right now. These ETFs have a Zacks Rank #1 (Strong Buy).
SPDR S&P 400 Mid Cap Value ETF (MDYV - Free Report) ) – Up 1.5% Past Month
Vanguard S&P Mid-Cap 400 Value ETF (IVOV - Free Report) ) – Up 1.5% Past Month
iShares S&P Mid-Cap 400 Value ETF (IJJ - Free Report) ) – Up 1.8% Past Month
Vanguard Mid-Cap Value ETF (VOE - Free Report) ) – Up 3.2% Past Month
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Time for Mid-Cap Value ETFs to Capitalize on "Rolling Expansion"?
While many Wall Street analysts were expecting a soft landing in the U.S. economy hurt by high inflation and rates, the latest view is that “rolling recession’ is turning into ‘rolling expansion,’ per a top Wall Street economist, as quoted on MarketWatch.
So far this year, U.S. small-cap stocks have shown decent trends but have lagged the S&P 500 (up about 15.8%). The small-cap Russell 2000, an index tracking U.S. small-cap stocks, saw modest gains of around 7.2% in the first half of 2023. The S&P 600 small-cap ETF (SLY) offered a muted performance of 4% in 1H. The best-performing small-cap ETF of this year is Motley Fool Small-Cap Growth ETF (TMFS - Free Report) (up 14.9%) (as of Jul 7, 2023) (read: 4 Small-Cap ETFs Beating the S&P 500 in 1H).
The U.S. economy has been showing better growth prospects than initially thought, which is a winning case for small-cap stocks as smaller companies are allied to the domestic economy. But higher rates and the failure of three regional banks in the first quarter of the year are huge concerns for the segment.
Why Mid Caps Better Bets?
In comparison, mid-cap ETF Invesco S&P MidCap Quality ETF (XMHQ - Free Report) is up about 15% this year. Mid caps offer the best of both worlds. While large companies are normally known for stability and the smaller ones are known for growth, mid caps are arguably safer options for considerable growth with lesser risk than their small-cap counterparts.
The U.S. economy grew by an annualized 2% on quarter in Q1 of 2023, breezing past 1.3% in the second estimate, and forecasts of 1.4%. Consumer spending growth accelerated more than expected to 4.2%, the highest in nearly two years.
The global economy, too, has started to improve, but the recovery still remains weak, according to the OECD's latest Economic Outlook. The Economic Outlook projects a moderation of global GDP growth from 3.3% in 2022 to 2.7% in 2023, followed by a rebound to 2.9% in 2024.
In 2022, total global retail sales (online and offline retail) amounted to around $25.8 trillion, which is expected to reach $32.0 billion, at a CAGR of 6%. Meanwhile, U.S. retail sales unexpectedly rose 0.3% sequentially in May 2023, following a 0.4% increase in April and beating forecasts of a 0.1% decline.
Mid caps are the best bets to capture the improvement in both U.S. and global economy. The capitalization has moderate exposure to both areas. Moreover, with the Fed likely to hike rates this month, interest rates are on an uptrend. Notably, value ETFs perform better in a rising rate environment.
ETFs to Tap
Against this backdrop, below, we highlight a few top-ranked mid-cap value ETFs that could be good bets right now. These ETFs have a Zacks Rank #1 (Strong Buy).
SPDR S&P 400 Mid Cap Value ETF (MDYV - Free Report) ) – Up 1.5% Past Month
Vanguard S&P Mid-Cap 400 Value ETF (IVOV - Free Report) ) – Up 1.5% Past Month
iShares S&P Mid-Cap 400 Value ETF (IJJ - Free Report) ) – Up 1.8% Past Month
Vanguard Mid-Cap Value ETF (VOE - Free Report) ) – Up 3.2% Past Month