Back to top

Image: Bigstock

Here's Why Mid-Cap Growth ETFs Are Hitting New Highs

Read MoreHide Full Article

With the prospect of fresh trade talks between the United States and China, the Wall Street regained momentum after a tumultuous ride at the start of the month. The dual tailwinds of strong corporate earnings and a booming economy have been driving the stock market rally this year and will likely continue to do so (read: Trade-Sensitive Sector ETFs & Stocks to Watch on Talk Hopes).

In particular, Q2 earnings growth has reached its highest level since 2010. Earnings will likely continue to grow in double digits in Q3 as well, per the latest Earnings Trends report.

A slew of upbeat economic data indicates a healthier economy. The U.S. economy is witnessing the fastest pace of growth in nearly four years with a nearly two-decade low unemployment rate of 3.9% and 18-year high consumer confidence. Historic tax cuts, higher government spending and deregulation are fueling growth. Additionally, the Fed is on track for gradual rates hike with the third increase of this year expected as soon as this month. A rising rate scenario also signals a strengthening economy, which is spurring growth in the stock market.

In such a scenario, investors seeking to capitalize on the strong fundamentals, but worried about Trump’s trade policies, should consider mid-cap stocks in the basket form.

Why Mid-Caps?

While large companies are normally known for stability and the smaller ones for growth, mid caps offer the best of both the worlds, allowing growth and stability in portfolios simultaneously. Additionally, these middle-of-road securities have relatively less exposure to international markets compared to large caps, thereby making them good bets in the current market turmoil, especially ruffled by US-China trade war. Thus, these stocks are currently a safer option and have higher upside potential (see: all the Mid Cap ETFs here).

Further, honing in on growth securities in this capitalization level allows investors to earn more returns. This is because growth stocks refer to those high-quality stocks that are likely to witness revenue and earnings increase at a faster rate than the industry average. These stocks harness their momentum in earnings to create a positive bias in the market, resulting in higher share prices.

Given this, most of the ETFs in this space hit all-time highs in the last trading session. We have highlighted them in detail below. Any of these could be excellent plays for investors seeking to ride the current trend, given that these have a Zacks ETF Rank #2 (Buy).

Vanguard Mid-Cap Growth ETF (VOT - Free Report)

This fund follows the CRSP US Mid Cap Growth Index. Holding 171 securities in its basket, it is highly diversified across each component with none holding more than 1.5% share. In terms of sector exposure, industrials occupies the top position at 25.8%, followed by technology (20.8%), financials (17.7%), and health care (13.1%). The product has managed nearly $6.1 billion in its asset base and trades in a good volume of around 121,000 shares a day on average. It charges 7 bps in annual fees and surged to a new high of $143.89 with year-to-date gain of 12.8% (read: Guide to the 25 Cheapest ETFs).

SPDR S&P 400 Mid Cap Growth ETF (MDYG - Free Report)

This ETF follows the S&P Mid Cap 400 Growth Index, holding 247 stocks in its basket. It is widely diversified across components, with each accounting for less than 1.4% share. Information technology is the top sector with 22.9% of the assets, while consumer discretionary, industrials, healthcare and financials also receive a double-digit exposure each. MDYG has about $1.3 billion in AUM and trades in volume of around 120,000 shares a day on average. It charges 15 bps in annual fees and hit a record high of $57.10, representing a gain of about 10.3% in the year-to-date timeframe.

iShares S&P Mid-Cap 400 Growth ETF (IJK - Free Report)

This product offers exposure to 247 mid-cap stocks whose earnings are expected to grow at an above-average rate relative to the market. It follows the S&P MidCap 400 Growth Index, charging investors 25 bps in annual fees. The ETF is widely spread out across components with none of the securities holding more than 1.34% of assets. It is slightly skewed toward information technology sector at 22.9% while consumer discretionary, industrials, healthcare, and financials receive a double-digit exposure each. IJK has amassed $8.4 billion in its asset base while trading in average daily volume of more than 120,000 shares. It has gained 10.3% in the year-to-date time frame, hitting a fresh high of $237.70.

iShares Russell Mid-Cap Growth ETF (IWP - Free Report)

With AUM of $9.6 billion, this ETF tracks the Russell MidCap Growth Index. It holds 414 securities in its basket with none accounting for more than 1.15% of total assets. It has key holdings in information technology making up for 33.5% exposure while consumer discretionary, industrials and health care round off the next three spots. It charges 25 bps in annual fees and trades in average daily volume of 248,000 shares. The product has gained 14% in the year-to-date time frame, hitting a fresh high of $137.64 (read: Tech Guru on FAANGs, AMD, a New Disruptive ETF & More).

First Trust Mid Cap Growth AlphaDEX Fund (FNY - Free Report)

This ETF follows the NASDAQ AlphaDEX Mid Cap Growth Index, charging investors 70 bps in annual fees. It holds well-diversified 225 stocks, with none accounting for more than 1.03% of the assets. Information technology takes one-fourth of the portfolio in terms of sector allocation while healthcare, consumer discretionary, industrials and financials round off the next four spots with a double-digit allocation each. The fund has amassed $257.7 million and trades in average daily volume of 41,000 shares. It scaled a fresh high of $47.20, having gained 19.8% so far this year.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>

Published in