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As 2009 draws to a close, it appears that this will be another “year of the mid cap.” Although equities of all sizes have posted strong gains this year (particularly when compared to 2008), mid caps have led the way, and mid cap ETFs have generally outperformed their small and large cap peers. Some investors take a “barbell” approach to the domestic equity portion of their portfolios, allocating assets primarily to large cap and small cap ETFs, and anticipating that the risk and return profile of mid caps will fall somewhere in between.

While they fall between these two groups in size, the same can’t always be said for performance: mid caps have been known to deliver returns both excess and inferior returns.

For investors looking to gain mid cap exposure, the most popular options are the SPDR MidCap Trust (NYSEARCA:MDY) and iShares S&P MidCap 400 Index Fund (NYSEARCA:IJH). Other mid cap ETFs with more than $1 billion in assets include the iShares Russell MidCap Index Fund (NYSEARCA:IWR) and the Vanguard Mid Cap ETF (NYSEARCA:VO).

While you’d be hard-pressed to find an investor who would turn up his nose at the returns delivered by these funds in 2009 (between 34% and 38%), there are some “hidden gems” among mid cap funds that have fared far better so far this year.

Earlier this month, we examined some large cap ETFs that have beat the big names so far in 2009 (see Beyond SPY for the details). Today we turn our attention to the mid caps.

ETFdb Pro members can access recommendations for mid cap ETFs in the ETFdb Category Report ETFdb Pro Members Only (if you’re not a Pro member yet, you can sign up for a free trial or read more here).

RevenueShares MidCap Fund (NYSEARCA:RWK)

RWK includes the same stocks that comprise IJH, but instead of weighting holdings based on total market capitalization, determines the allocation given to each based on top line revenue over the previous 12 months. By utilizing this weighting methodology, RWK (and other products from RevenueShares) tend to overweight companies with low price-to-sales ratios and underweight those with high price-to-sales ratios (see this feature for an in-depth look at the potential benefits of revenue-weighting).

So far in 2009, this seemingly minor tweak has made a big difference in returns: RWK has gained about 51% this year, putting it almost 15% of its cap-weighted competitor and making it the top performing ETF in the Mid Cap Blend ETFdb Category. RWK charges an expense ratio of 0.54%.

RWK

Claymore/Zacks Mid-Cap Core ETF (NYSEARCA:CZA)

This ETF seeks to outperform the Russell MidCap Index and S&P MidCap 400 Index by selecting approximately 100 companies with market capitalizations ranging from $1 billion to $10 billion. Individual stocks are selected using a proprietary strategy developed by Zacks. Whatever the tactics employed are, they seem to be working: CZA has gained an impressive 42% year-to-date.

The 100 or so components of this ETF include several big names: Pepsi Bottling Group, Cablevision, Fifth Third, and Molson Coors are all given weightings of at least 2%. CZA has a market capitalization of only about $5 million and daily volume of 5,000 shares, so the use of limit orders is strongly advised for investors in this fund.

CZA

First Trust Mid Cap Core AlphaDEX (NYSEARCA:FNX)

FNX is one of the many ETFs that blurs the lines between passive indexing and traditional active management. Like most ETFs, this fund seeks to replicate the performance of a benchmark (the Defined Mid Cap Core Index to be exact). But unlike most benchmarks that determine components and allocations based on market capitalization or some other fundamental factor, the index underlying FNX is an “enhanced” index that employs the proprietary AlphaDEX methodology to select stocks from the S&P MidCap 400 Index. For a closer look at “enhanced” indexing strategies, see this special report.

Potential components are ranked on a variety of quantitative metrics that contribute to an overall score. The bottom-ranking 25% are then eliminated and the top 75% is then separated into quintiles. Stocks are equally weighted within the quintiles, and the most promising quintile (i.e., the highest-ranking and most promising stocks) is given an aggregate weighting equal to 5/15ths of the total fund. The second quintile is given an aggregate weighting equal to 4/15ths of the total fund, and so on. So the least promising stocks are either omitted altogether or given minimal weighting.

In 2009, this strategy has performed very well, pushing FNX up more than 45%.

FNX

Disclosure: No positions at time of writing.

Source: Outperforming Mid Cap ETFs