Being stuck in the middle may not be so bad for mid-cap stock exchange traded funds that have outperformed their larger counterparts and experienced less volatility than smaller companies.
"There's a case to be made for midcap stocks to be in a sweet spot for investors," Todd Rosenbluth, director of ETF research at S&P Capital IQ, said in a MarketWatch report.
According to S&P, mid-cap companies in the S&P MidCap 400 Index are growing faster and carry less debt than large-cap S&P 500 stocks. Moreover, mid-caps have greater access to capital markets than small-caps.
Middle-capitalization companies are oriented toward the domestic economy and they don't get much international sales exposure. As the U.S. economy recovered, mid-cap stock funds have gained about 20% so far this year, compared to 17.6% for large-caps and 22% for small-caps.
Additionally, when comparing mid-cap index funds and ETFs to actively managed products, the passive vehicles have outperformed by an average percentage point or more due to cost advantages, according to Morningstar. The average expense ratio on actively managed mutual funds is about 1.3%.
MarketWatch's Jonathan Burton points out three low-cost mid-cap ETFs with robust returns.
- iShares Core S&P Mid-Cap ETF (IJH). The S&P Mid-Cap ETF mirrors the S&P 400 MidCap Index. IJH has a 0.15% expense ratio. The fund is up 20% year-to-date and experienced an average annualized return of 10.1% over the past 5 years.
- Vanguard Mid-Cap ETF (VO). This fund tracks the CRSP US Mid Cap Index. The index has a median market cap above $9 billion, compared to the $3.3 billion for the S&P MidCap 400. The ETF is up 20.5% year-to-date and gained 9.6% annually over the past 5 years. VO has a 0.16% expense ratio.
- iShares Russell Mid-Cap ETF (IWR). The fund follows the Russell MidCap Index, which has a median market-cap of $5.3 billion, and holds 810 component stocks. IWR has a 0.22% expense ratio.
Max Chen contributed to this article.
Full disclosure: Tom Lydon's clients own VO.