Here's Why Mid-Cap ETFs Could Make for a Safer Bet Now
In the current scenario, where the market is behaving in a highly unpredictable manner, a mid-cap investment strategy can come in handy. Investment in mid-cap funds is often recognized as a good portfolio diversification strategy. These funds combine attractive attributes of both small and large-cap ETFs. While large companies are normally known for stability and the smaller ones for growth, mid-caps offer the best of both worlds.
The rapidly spreading coronavirus outbreak seems to have unnerved market participants as the total number of cases has crossed 4.7 million with at least 150,000 deaths, per a CNN report. Also, the U.S. economy’s second-quarter GDP’s most devastating plunge of 32.9% on an annualized basis, according to the Commerce Department’s first reading of the data, dented investors’ optimism (going by a CNBC article).
Moreover, the rising number of coronavirus cases in the United States hurt consumer confidence in July as consumers are worried about the job prospects and business conditions across the nation. The Conference Board's measure of consumer sentiment index stands at 92.6, comparing unfavorably with June’s reading of 98.3.
Investors are apprehensive of another round of business restrictions and lockdown measures might derail the economic recovery achieved so far.
Factors Fueling Optimism
As the number of coronavirus cases continues to rise, all the eyes are on developments in vaccine and treatments. Favorable updates on two vaccine candidates being made by Moderna (MRNA) and Pfizer (PFE) in collaboration with German biotech firm BioNTech came to the fore. These companies began the late-stage study on their coronavirus vaccines. Other vaccine developers that are being supported by the Operation Warp Speed are also nearing the late-stage trials. These include an experimental vaccine being developed in collaboration with the University of Oxford and AstraZeneca (AZN), a vaccine candidate from Johnson & Johnson (JNJ) and another one from the biotechnology company Novavax (NVAX), per The Washington Post article.
Eli Lilly and Company (LLY) has also informed about initiating a late-stage trial on one of its experimental COVID-19 antibody treatments. The phase 3 study will ensure if LY-CoV555, a treatment developed by Eli Lilly in collaboration with Canadian biotech AbCellera, can prevent the spread of the virus in residents and staff in U.S. nursing homes. The company might enroll up to 2,400 participants who live or work at a facility that have had a recently diagnosed case of coronavirus.
Going on, the improving manufacturing numbers have instilled optimism among investors. The U.S. ISM Manufacturing PMI came in at 54.2 for July 2020, up from 52.6 in the previous month and beat market expectations of 53.6. That is the highest reading since March 2019 as manufacturing activity is recovering after the pandemic-induced turbulence. A reading above 50 indicates expansion in manufacturing, which makes up about 11% of the U.S. economy, per a Reuters article.
Mid-Cap ETFs in Focus
As such, investors seeking to capitalize on the strong fundamentals but worried about uncertainty should consider mid-cap ETFs. Below, we have presented five popular mid-cap ETFs:
Vanguard Mid-Cap ETF VO
The fund seeks to track the performance of the CRSP US Mid Cap Index, which measures the investment return of mid-capitalization stocks. With a basket of 356 holdings, it has AUM of $34.31 billion. It charges a fee of 4 basis points (see: all the Mid Cap ETFs here).
SPDR S&P MIDCAP 400 ETF Trust MDY
The fund seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P MidCap 400 Index. With a basket of 400 holdings, it has AUM of $14.93 billion. It charges a fee of 23 basis points (read: Fed Goes the Extra Mile: 6 ETF Areas to Win).
iShares Russell Mid-Cap Value ETF IWS
The fund provides exposure to mid-sized U.S. companies that are thought to be undervalued by the market relative to comparable companies and tracks the Russell MidCap Value Index. With a basket of 686 holdings, it has AUM of $9.91 billion. It charges a fee of 24 basis points.
Vanguard Mid-Cap Growth ETF VOT
The fund seeks to track the performance of the CRSP US Mid Cap Growth Index, which measures the investment return of mid-capitalization growth stocks. With a basket of 167 holdings, it has AUM of $8.26 billion. It charges a fee of 7 basis points.
Schwab U.S. Mid-Cap ETF SCHM
The fund’s goal is to track as closely as possible, before fees and expenses, the total return of the Dow Jones U.S. Mid-Cap Total Stock Market Index. With a basket of 507 holdings, it has AUM of $6.56 billion. It charges a fee of 4 basis points.
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iShares Russell MidCap Value ETF (IWS): ETF Research Reports
SPDR SP MidCap 400 ETF (MDY): ETF Research Reports
Schwab U.S. MidCap ETF (SCHM): ETF Research Reports
Vanguard MidCap Growth ETF (VOT): ETF Research Reports
Vanguard MidCap ETF (VO): ETF Research Reports
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