By John Spence & Tom Lydon
Stuck in the middle has been a pretty good place to be with mid-cap ETFs the past few years.
For example, SPDR S&P MidCap 400 (NYSEARCA:MDY) has outperformed its large-cap and small-cap peers by a significant margin since the financial crisis.
The Dow Jones Industrial Average, S&P 500, Nasdaq Composite, S&P MidCap 400 and small-cap iShares Russell 2000 have all retraced at least 100% of their losses suffered during the financial crisis, according to chartoftheday.com.
"However, it has been the often overlooked S&P 400 (mid-cap stocks) that has been the star performer," the service notes. "The S&P 400 has recouped over 140% of its financial crisis decline - a very impressive performance."
"Mid-cap stocks tend to be more volatile because of narrower economic moats and a greater sensitivity to macroeconomic risks, but with this greater volatility comes a higher beta and the expectation for higher returns," Morningstar notes in a profile of MDY, the mid-cap ETF.
"While over long periods of time mid-cap stocks tend to outperform, it is unlikely that they will be able to continue to outperform at the same rate as they have over the last decade," it adds. "Although this asset class should be part of any equities investment allocation, mid-caps' higher valuations and greater vulnerability to economic conditions are reasons for caution."
Full disclosure: Tom Lydon's clients own IWM and SPY.
Disclosure: I am long IWM, SPY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.