Some Passive Options For Small- And Mid-Cap Investing

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 |  Includes: IJH, IJS, IWM, IWS
by: Clark Troy

I've got some money on the sidelines that is slated to go back into mid-cap and small-cap funds or ETFs when the time is right. In preparation for that moment, or, more likely, series of moments, I did a little due diligence on some small and mid-cap funds and ETFs from Vanguard and iShares. I've pasted a few key data points in the table below. (All the Vanguard funds end in an X, and all the iShares ETFs start with an I.)

Category Symbol Fees (BPS) Yield % Index
Mid cap IJH 20 1.16 S&P MId Cap 400
Mid cap VIMSX 24 1.05 MSCI Mid Cap 450
Mid cap Value IWS 25 1.95 Russell Midcap Value
Mid cap Value VMVIX 24 1.86 MSCI Mid Cap Value Index
Small cap NAESX 24 1.08 MSCI Small Cap 1750
Small cap IWM 20 1.36 Russell 2000
Small cap Value IJS 25 1.25 S&P Small Cap 600 Value
Small cap Value VISVX 24 1.86 MSCI Small cap Value
Click to enlarge

I am in general quite sensitive to and appreciative of John Bogle's argument that -- because mutual funds trade only at the end of the day -- they are a better option for retail investors than are ETFs, whose very tradeability encourages one to buy and sell on an intra-day basis, and thus makes us more susceptible to the emotional signals that so often lead us to do things we regret. With that said, I'm inclined to go with at least one of the ETFs, IJH, because its fees are lower than its Vanguard counterpart. Also, for whatever reason, be it construction or the index or whatever, IJH outperforms its Vanguard counterpart over most time periods on a total return basis, just as NAESX outperforms IWM.

Since I did the legwork on the two pairs of Value funds, I'm including them here to save readers the trouble of digging up those numbers themselves. At the end of the day, I'll probably keep my money in IJH and NAESX, so as not to clog up my portfolio with too many positions.

Following Jason Zweig's guidance from an "Intelligent Investor" column a couple of years back in the Wall Street Journal, I'll move towards having 20% of my domestic positions in the mid cap index and 10% in the small cap one. And then I'll go do something else.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in IJH over the next 72 hours.