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Wall Street lost its momentum at the start of 2024, triggered by overvaluation concerns and uncertainty about the timing of Fed rate cuts.
The latest Fed minutes showed that the central bank wouldn’t cut rates as aggressively as expected for this year. This suggests an uncertain path toward interest rate cuts and reflects a growing sense that inflation is under control (read: 4 ETF Zones Beating the Market to Start 2024).
The latest data on inflation, which came in modestly hotter than expected, has dampened market expectations about an interest rate cut as soon as March. Though the job data report for December came in stronger than expected, it also cast doubt on the expectations of March rate cuts. The disappointing manufacturing data also added to the chaos. The U.S. manufacturing sector slipped further into contraction in December, according to the latest PMI data from S&P Global, as output declined and the downturn in new orders gathered pace.
While the timing of interest rate cuts is uncertain, the Fed penciled in three rate cuts for this year in its last meeting. This shift in its monetary policy approach is a result of gradual control of inflation and aims to support a stable economic environment without triggering a recession or a significant rise in unemployment. Lower interest rates generally lead to reduced borrowing costs, which can stimulate economic growth.
In such a scenario, mid-cap investing can be a strong option, 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 (read: 5 Top-Ranked ETFs to Buy Cheap in 2024).
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.
As a result, mid-cap stocks often exhibit greater growth potential than large caps while providing more stability than small-cap stocks.
Our Picks
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), suggesting their outperformance in the months ahead.
Vanguard Mid-Cap ETF tracks the CRSP US Mid-Cap Index. It holds 338 stocks with a well-diversified portfolio, with each firm holding no more than 0.8% of the total assets. Vanguard Mid-Cap ETF has key holdings in industrials, technology, consumer discretionary and financials.
With AUM of $58.7 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 Value ETF follows the CRSP US Mid Cap Value Index, which measures the investment return of mid-capitalization value stocks. It holds 195 stocks in its basket, with each accounting for less than 1.4% of the assets. Financials, industrials, consumer discretionary and utilities are the top five sectors with double-digit exposure each (read: Value ETFs Reach New 52-Week High to Start 2024).
Vanguard Mid-Cap Value ETF has amassed $16 billion and trades in an average daily volume of 389,000 shares. It charges 7 bps in fees per year.
SPDR Portfolio S&P 400 Mid Cap ETF targets the broad mid-cap segment of the 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 and consumer discretionary are the top three sectors with a double-digit allocation each.
SPDR Portfolio S&P 400 Mid Cap ETF has accumulated $8 billion in its asset base while trading in a volume of 876,000 shares per day on average. It charges 3 bps in annual fees.
Vanguard S&P Mid-Cap 400 ETF 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, consumer discretionary and financials are the top three sectors with double-digit exposure each.
Vanguard S&P Mid-Cap 400 ETF has managed $1.8 billion in its asset base and trades in a volume of around 77,000 shares a day on average. The ETF charges 10 bps in annual fees.
iShares Russell Mid-Cap Value ETF follows the Russell MidCap Value Index and holds 704 stocks in its basket. With AUM of $12.8 billion, it has key holdings in industrials, financials and real estate that account for double-digit exposure each.
IWS charges investors 23 bps in annual fees and trades in an average daily volume of 526,000 shares.
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5 Top-Ranked Mid-Cap ETFs to Buy Now
Wall Street lost its momentum at the start of 2024, triggered by overvaluation concerns and uncertainty about the timing of Fed rate cuts.
The latest Fed minutes showed that the central bank wouldn’t cut rates as aggressively as expected for this year. This suggests an uncertain path toward interest rate cuts and reflects a growing sense that inflation is under control (read: 4 ETF Zones Beating the Market to Start 2024).
The latest data on inflation, which came in modestly hotter than expected, has dampened market expectations about an interest rate cut as soon as March. Though the job data report for December came in stronger than expected, it also cast doubt on the expectations of March rate cuts. The disappointing manufacturing data also added to the chaos. The U.S. manufacturing sector slipped further into contraction in December, according to the latest PMI data from S&P Global, as output declined and the downturn in new orders gathered pace.
While the timing of interest rate cuts is uncertain, the Fed penciled in three rate cuts for this year in its last meeting. This shift in its monetary policy approach is a result of gradual control of inflation and aims to support a stable economic environment without triggering a recession or a significant rise in unemployment. Lower interest rates generally lead to reduced borrowing costs, which can stimulate economic growth.
In such a scenario, mid-cap investing can be a strong option, 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 (read: 5 Top-Ranked ETFs to Buy Cheap in 2024).
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.
As a result, mid-cap stocks often exhibit greater growth potential than large caps while providing more stability than small-cap stocks.
Our Picks
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), 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 iShares Russell Mid-Cap Value ETF (IWS - 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 338 stocks with a well-diversified portfolio, with each firm holding no more than 0.8% of the total assets. Vanguard Mid-Cap ETF has key holdings in industrials, technology, consumer discretionary and financials.
With AUM of $58.7 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 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 195 stocks in its basket, with each accounting for less than 1.4% of the assets. Financials, industrials, consumer discretionary and utilities are the top five sectors with double-digit exposure each (read: Value ETFs Reach New 52-Week High to Start 2024).
Vanguard Mid-Cap Value ETF has amassed $16 billion and trades in an average daily volume of 389,000 shares. It charges 7 bps in fees per year.
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 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 and consumer discretionary are the top three sectors with a double-digit allocation each.
SPDR Portfolio S&P 400 Mid Cap ETF has accumulated $8 billion in its asset base while trading in a volume of 876,000 shares per day on average. It charges 3 bps in annual fees.
Vanguard S&P Mid-Cap 400 ETF (IVOO - Free Report)
Vanguard S&P Mid-Cap 400 ETF 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, consumer discretionary and financials are the top three sectors with double-digit exposure each.
Vanguard S&P Mid-Cap 400 ETF has managed $1.8 billion in its asset base and trades in a volume of around 77,000 shares a day on average. The ETF charges 10 bps in annual fees.
iShares Russell Mid-Cap Value ETF (IWS - Free Report)
iShares Russell Mid-Cap Value ETF follows the Russell MidCap Value Index and holds 704 stocks in its basket. With AUM of $12.8 billion, it has key holdings in industrials, financials and real estate that account for double-digit exposure each.
IWS charges investors 23 bps in annual fees and trades in an average daily volume of 526,000 shares.