ETFs are becoming ubiquitous as their appeal drives them to increasing use in building portfolios. We are working through the process of selecting the best ETFs from a returns perspective to build a plan that has a reasonable number of funds and yet can deliver strong returns. So far we have covered large cap stocks -- blend, growth and value. click to enlarge images In this article, we move on to mid cap blend ETFs with the goal of providing the same ranking. We will follow the same process -- rank and determine a cutoff based on trading volume for liquidity and low trading friction, then rank them based on their returns and assign a score. We start with an extensive list of large cap value ETFs: Symbol Name SPDR S&P MidCap 400 iShares S&P MidCap 400 Index iShares Russell Midcap Index Vanguard Mid-Cap ETF Vanguard Extended Market Index First Trust Mid Cap Core Alpha iShares Morningstar Mid Core I RevenueShares Mid Cap SPDR Dow Jones Mid Cap PJG PowerShares Dynamic Mid Cap Guggenheim Mid-Cap Core Vanguard S&P Mid-Cap 400 Index Rydex Russell MidCap Equal Wei Schwab U.S. Mid-Cap ETF
We reviewed daily trading volume data and applied a cutoff below 200,000. Note that this is a lower threshold than the large cap blend but we will trade volume for having enough ETFs to make a reasonable comparison. This left us four ETFs with sufficient volume to be considered further.
Ticker | Description | 5 Yr AR% | 3yr AR% | 1yr AR% |
SPDR S&P MidCap 400 | 5.09% | 6.20% | 36.87% | |
iShares S&P MidCap 400 Index | 4.42% | 5.66% | 36.70% | |
Vanguard Mid-Cap ETF | 3.60% | 3.05% | 36.00% | |
iShares Russell Midcap Index | 3.27% | 2.89% | 34.69% |
All of the mid cap blends show good performance but MDY and IJH are top of the heap and also have the highest trading volume and so they are the logical pick for inclusion in the portfolio. We will also include VO as a backup if the other two exhibit some undesirable properties in deeper examination.
Ticker | Property | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 |
DrawDown(%) | 10.49 | 7.99 | 12.52 | 11.07 | 53.07 | 27.49 | 17.58 | 2.54 | |
Return(%) | 15.89 | 12.53 | 9.54 | 7.23 | (36.44) | 37.03 | 26.48 | 4.21 | |
DrawDown(%) | 10.93 | 8.33 | 12.89 | 11.39 | 53.41 | 27.25 | 17.45 | 2.58 | |
Return(%) | 15.00 | 11.55 | 8.63 | 5.95 | (36.59) | 35.78 | 26.41 | 4.07 | |
DrawDown(%) | 10.06 | 7.96 | 11.58 | 12.34 | 55.70 | 27.43 | 16.76 | 2.24 | |
Return(%) | 6.52 | 13.79 | 13.54 | 5.14 | (42.85) | 40.13 | 25.82 | 4.67 |
We can see that there are no anomalies in the detailed return or drawdown information so MDY and IJH become the two midcap blends that will be added to the portfolio.
Disclosure: MyPlanIQ does not have any business relationship with the company or companies providing the ETFs mentioned in this article. We have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
