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The greatest benefit of having mid cap stocks in your portfolio is that they are often under-researched and under-owned by most mutual funds and other financial institutions. Consequently, investing in good quality mid cap stocks can significantly improve the annual return generated by your investment portfolio over the long-term.

Mid cap “blend” ETFs contain a fine balance of defensive and growth oriented mid cap stocks. Having mid cap blend ETFs in your investment portfolio gives you the twin advantage of above average returns and capital protection at the same time. These specific advantages make them ideal candidates for asset allocations to IRA investments, 401K investments and other retirement investment plans.

Talking of U.S. mid cap blend ETFs, U.S. equities in general have outperformed most equity asset classes in 2011. Within U.S. equities, mid cap blend ETF performance has been dwarfed by large cap ETFs. This is primarily because of the current economic slowdown and the eurozone debt crisis. It must be noted that mid cap stocks and ETFs tend to outperform their large cap peers in a growing economy. On the other hand, mid cap stocks tend to be more stable than small cap stocks, making them a good anchor for a long term portfolio. The following tables illustrate the relative growth rates of various asset classes.

Major Asset Classes Trend

(11/10/2011)

Description

Symbol

1 Week

4 Weeks

13 Weeks

26 Weeks

52 Weeks

Trend Score

Gold

GLD

-0.34%

5.45%

0.23%

16.75%

24.32%

9.28%

Total US Bonds

BND

-0.14%

1.04%

1.31%

4.81%

5.56%

2.51%

US Stocks

VTI

-1.82%

3.43%

6.13%

-8.2%

4.9%

0.89%

International Treasury Bonds

BWX

-1.2%

-0.71%

-2.1%

0.25%

3.59%

-0.04%

Emerging Market Stks

VWO

-3.53%

2.75%

-4.08%

-15.95%

-12.73%

-6.71%

International Developed Stks

EFA

-3.66%

-1.9%

-3.37%

-16.3%

-10.2%

-7.09%

US Equity-Style Trend

(11/10/2011)

Description

Symbol

1 Week

4 Weeks

13 Weeks

26 Weeks

52 Weeks

Trend Score

Russell Largecap Growth

IWF

-1.82%

2.47%

6.22%

-6.26%

5.48%

1.22%

Russell Largecap Index

IWB

-1.63%

3.21%

6.3%

-7.89%

3.82%

0.76%

Russell Largecap Value

IWD

-1.53%

3.94%

5.98%

-9.48%

2.13%

0.21%

Russell Midcap Value

IWS

-2.06%

4.62%

5.67%

-11.33%

2.35%

-0.15%

Russell Midcap Growth

IWP

-2.82%

3.3%

5.06%

-11.71%

4.36%

-0.36%

Russell Midcap Indedx

IWR

-2.43%

3.87%

5.36%

-11.51%

2.8%

-0.38%

Russell Smallcap Growth

IWO

-3.7%

3.74%

5.2%

-13.73%

3.16%

-1.07%

Russell Smallcap Index

IWM

-3.33%

3.88%

4.88%

-13.84%

0.27%

-1.63%

Russell Smallcap Value

IWN

-3.19%

4.03%

4.57%

-14.03%

-2.93%

-2.31%

For more information on the performance of various asset classes, see here.

Let’s take a look at the largest and the most prominent U.S. mid cap blend ETFs currently trading in the market.

U.S. Mid Cap Blend

(11/04/2011)



Description

Symbol

1 Yr

3 Yr

5 Yr

Avg. Volume(K)

1 Yr Sharpe

SPDR S&P MidCap 400

MDY

6.3%

16.9%

3.92%

4,842

28.75%

iShares S&P MidCap 400 Index

IJH

6.57%

17.43%

3.87%

1,506

29.83%

Vanguard Mid-Cap ETF

VO

5.86%

16.98%

2.27%

249

27.73%

iShares Russell Midcap Index

IWR

5.44%

16.85%

2.04%

465

26.28%

Vanguard Extended Market Index

VXF

4.61%

15.95%

2.65%

138

19.6%

For more information on ETFs covering various asset classes, see here.

Taking into consideration high average volume, higher long term (5-year) returns and a higher Sharpe ratio, both MDY and IJH would make for good long-term investment options. Out of the two, IJH has higher short-term returns (1-3 years) and a higher Sharpe ratio (29.83%) and it also has pretty decent daily volumes (1,506,000). Keeping this in mind, let us take a close look at IJH’s stock holdings and sector-wise asset allocations:

Top Daily Holdings* as of 11/9/2011

DOLLAR TREE INC

0.90%

GREEN MOUNTAIN COFFEE ROASTE

0.81%

PERRIGO CO

0.78%

BORGWARNER INC

0.68%

KANSAS CITY SOUTHERN

0.66%

HANSEN NATURAL CORP

0.65%

VERTEX PHARMACEUTICALS INC

0.60%

MACERICH CO/THE

0.60%

HOLLYFRONTIER CORP

0.60%

AMETEK INC

0.60%

Total

6.90%

Sector Breakdown as of 11/9/2011

Financials

19.15%

Information Technology

16.07%

Industrials

15.77%

Consumer Discretionary

13.98%

Health Care

10.45%

Energy

6.96%

Materials

6.51%

Utilities

6.20%

Consumer Staples

4.29%

Telecommunication Services

0.47%

Other/Undefined

0.15%

Total

100.00%

IJH is benchmarked to the S&P Mid Cap 400 index. It currently has a total of 402 mid-sized stocks spread across various sectors representing the U.S. economy. Its ten top holdings constitute only 6.9% of its total AUM, which helps hedge any event or performance risk that may arise. Sector allocations for IJH include a good balance of traditionally defensive sectors (Consumer staples, Utilities, Energy, Healthcare etc.) and aggressive growth sectors (Financials, I.T, Telecom etc.).

Taking the above statistics into account, we can safely assume that U.S. mid cap blend ETFs in general and IJH in particular should do well as the global economic outlook improves and growth resumes in the days ahead. At the same time, relatively high volatility and underperformance may continue in the immediate future.

Disclaimer: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.

Source: Mid Cap Blend ETFs: Growth And Stability For Asset Allocation