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Wall Street has lost momentum since the start of August, triggered by a series of bank downgrades, fears of higher rates for a longer-than-expected period and China slowdown.
A raft of strong economic data kept alive fears of higher interest rates for a longer period. U.S. retail sales came in better than expected, rising 0.7% in July. Additionally, inflation rose for the first time in July after 12 straight months of decline.
The Federal Reserve Chair Jerome Powell, in the Jackson Hole symposium on Friday, warned that the central bank is prepared to raise interest rates further and keep borrowing costs high until inflation comes in the target range of 2%. Powell showed his confidence in continued economic growth in the United States, citing “robust” consumer spending and early signs of a recovery in the housing market (read: ETFs in Focus Post Hawkish Powell Speech).
Mid-cap investing can be a strong option in volatile stock markets, offering a unique balance between growth and stability, diversification benefits and potential for undervalued opportunities.
Why Mid-Caps?
Large-cap stocks tend to be household names with established businesses, while small-cap stocks offer the excitement of undiscovered opportunities. Mid-cap stocks occupy a unique position in the market, combining the stability of large-cap stocks with the growth potential of small-cap ones.
Mid-cap companies occupy a sweet spot in the market, as they have typically outgrown their small-cap counterparts and proven their business models but have not yet reached the size and maturity of large-cap companies. This transitional stage often results in higher growth rates and attractive risk-return characteristics.
Including mid-cap stocks in a portfolio can provide valuable diversification benefits, as they often exhibit different risk-return characteristics compared to large-cap and small-cap stocks. This diversification can help reduce the overall risk of a portfolio, particularly during periods of market volatility, by spreading investments across various market segments that may be impacted differently by market fluctuations (read: 5 ETFs to Protect Your Portfolio From Downside Risk).
As a result, mid-cap stocks often exhibit greater growth potential than large caps while providing more stability than small-cap stocks.
Mid-Cap ETFs
To invest in this space, ETFs have emerged as a popular way for investors to access mid-cap stocks, offering several advantages. While there are several ETF choices available in the mid-cap space, we have highlighted some solid choices that currently boast a Zacks ETF Rank #1 (Strong Buy) or 2 (Buy), suggesting their outperformance in the months ahead.
Vanguard Mid-Cap ETF tracks the CRSP US Mid-Cap Index. It holds 342 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, technology, consumer discretionary, financials and healthcare.
With AUM of $53.3 billion, Vanguard Mid-Cap ETF charges investors 4 bps in fees per year and trades in an average daily volume of 527,000 shares. Vanguard Mid-Cap ETF has a Zacks ETF Rank #1 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 194 stocks in its basket, with each accounting for less than 1.5% of assets. Financials, industrials, consumer discretionary, utilities, and real estate are the top five sectors with double-digit exposure each.
Vanguard Mid-Cap Value ETF has amassed $15.7 billion and trades in an average daily volume of 338,000 shares. It charges 7 bps in fees per year and has a Zacks ETF Rank #1.
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 , consumer discretionary, financials and information technology are the top four sectors with a double-digit allocation each.
SPDR Portfolio S&P 400 Mid Cap ETF has accumulated $6.8 billion in its asset base while trading in a volume of 565,000 shares per day on average. It charges 3 bps in annual fees and has a Zacks ETF Rank #2.
Vanguard S&P Mid-Cap 400 ETF also offers exposure to broad mid-capitalization stocks. It follows the S&P MidCap 400 Index, holding 400 securities with none accounting for more than 0.8% share. Industrials, consumer discretionary and financials are the top three 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 45,000 shares a day on average. The ETF charges 10 bps in annual fees and has a Zacks ETF Rank #2 with a Medium risk outlook.
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 the highest quality scores. It holds 81 stocks in its basket, with each making up for no more than 4% of assets. Invesco S&P MidCap Quality ETF has key holdings in industrials, consumer discretionary, information technology, energy and healthcare with double-digit exposure each (read: Time for High-Quality ETFs as Slowdown Worries Mount?).
Invesco S&P MidCap Quality ETF has amassed $1.2 billion in its asset base and trades in an average daily volume of 109,000 shares. It charges 25 bps in annual fees.
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5 Mid-Cap ETFs to Buy Amid Volatile Markets
Wall Street has lost momentum since the start of August, triggered by a series of bank downgrades, fears of higher rates for a longer-than-expected period and China slowdown.
A raft of strong economic data kept alive fears of higher interest rates for a longer period. U.S. retail sales came in better than expected, rising 0.7% in July. Additionally, inflation rose for the first time in July after 12 straight months of decline.
The Federal Reserve Chair Jerome Powell, in the Jackson Hole symposium on Friday, warned that the central bank is prepared to raise interest rates further and keep borrowing costs high until inflation comes in the target range of 2%. Powell showed his confidence in continued economic growth in the United States, citing “robust” consumer spending and early signs of a recovery in the housing market (read: ETFs in Focus Post Hawkish Powell Speech).
Mid-cap investing can be a strong option in volatile stock markets, offering a unique balance between growth and stability, diversification benefits and potential for undervalued opportunities.
Why Mid-Caps?
Large-cap stocks tend to be household names with established businesses, while small-cap stocks offer the excitement of undiscovered opportunities. Mid-cap stocks occupy a unique position in the market, combining the stability of large-cap stocks with the growth potential of small-cap ones.
Mid-cap companies occupy a sweet spot in the market, as they have typically outgrown their small-cap counterparts and proven their business models but have not yet reached the size and maturity of large-cap companies. This transitional stage often results in higher growth rates and attractive risk-return characteristics.
Including mid-cap stocks in a portfolio can provide valuable diversification benefits, as they often exhibit different risk-return characteristics compared to large-cap and small-cap stocks. This diversification can help reduce the overall risk of a portfolio, particularly during periods of market volatility, by spreading investments across various market segments that may be impacted differently by market fluctuations (read: 5 ETFs to Protect Your Portfolio From Downside Risk).
As a result, mid-cap stocks often exhibit greater growth potential than large caps while providing more stability than small-cap stocks.
Mid-Cap ETFs
To invest in this space, ETFs have emerged as a popular way for investors to access mid-cap stocks, offering several advantages. While there are several ETF choices available in the mid-cap space, we have highlighted some solid choices that currently boast a Zacks ETF Rank #1 (Strong Buy) or 2 (Buy), suggesting their outperformance in the months ahead.
These include Vanguard Mid-Cap ETF (VO - Free Report) , Vanguard Mid-Cap Value ETF (VOE - 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) .
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 342 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, technology, consumer discretionary, financials and healthcare.
With AUM of $53.3 billion, Vanguard Mid-Cap ETF charges investors 4 bps in fees per year and trades in an average daily volume of 527,000 shares. Vanguard Mid-Cap ETF has a Zacks ETF Rank #1 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 194 stocks in its basket, with each accounting for less than 1.5% of assets. Financials, industrials, consumer discretionary, utilities, and real estate are the top five sectors with double-digit exposure each.
Vanguard Mid-Cap Value ETF has amassed $15.7 billion and trades in an average daily volume of 338,000 shares. It charges 7 bps in fees per year and has a Zacks ETF Rank #1.
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 , consumer discretionary, financials and information technology are the top four sectors with a double-digit allocation each.
SPDR Portfolio S&P 400 Mid Cap ETF has accumulated $6.8 billion in its asset base while trading in a volume of 565,000 shares per day on average. It charges 3 bps in annual fees and has a Zacks ETF Rank #2.
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 400 securities with none accounting for more than 0.8% share. Industrials, consumer discretionary and financials are the top three 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 45,000 shares a day on average. The ETF charges 10 bps in annual fees and has a Zacks ETF Rank #2 with a Medium risk outlook.
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 the highest quality scores. It holds 81 stocks in its basket, with each making up for no more than 4% of assets. Invesco S&P MidCap Quality ETF has key holdings in industrials, consumer discretionary, information technology, energy and healthcare with double-digit exposure each (read: Time for High-Quality ETFs as Slowdown Worries Mount?).
Invesco S&P MidCap Quality ETF has amassed $1.2 billion in its asset base and trades in an average daily volume of 109,000 shares. It charges 25 bps in annual fees.