As investors start to diversify their equity holdings, medium-sized companies and mid-cap exchange traded funds (ETFs) are standing out and experiencing greater flows of cash into the asset class.
In February, mid-cap ETFs experienced five times the amount of new investment inflows as compared to small-cap funds and even outpaced large-caps, writes Murray Coleman for Barron’s. Matt King, chief investment officer at Bell Investment Advisors, remarks that "the momentum is clearly with mid-caps, which historically have provided superior risk/reward profiles compared to small-caps."
Scott Chronert, a Citigroup small- and mid-cap equities strategist, believes that mid-caps are "proving to be an easy way for investors to migrate up in market-cap size to gain more stability and liquidity without sacrificing performance."
In the last 12 months, mid-cap blend stocks have outperformed small-caps by an average 0.5%, and mid-caps are up more than 2% over the last 15 years. The Russell mid-cap index has gained around 137% since March 9, 2009. Mid-caps continue to draw investors as they look cheaper than small-caps on a relative price/earnings basis – the S&P MidCap 400 Index is trading around 16.6 times 2011 expected earnings.
Additionally, mid-cap companies could benefit from the greater merger-and-acquisitions activity in the markets.
- Vanguard Mid-Cap ETF (NYSEARCA:VO) limits almost all if its holdings to mid-caps.
- SPDR S&P MidCap 400 (NYSEARCA:MDY) is the most popular and most liquid mid-cap ETF.
- iShares S&P MidCap 400 Index (NYSEARCA:IJH) is based on the same index as MDY, but the fund holds more smaller companies.
Max Chen contributed to this article.