A Guide to U.S. Mid Cap ETFs

by: SA Editors

US Mid Cap ETFs List
(click on symbol for data and articles)

Mid Cap Traditional Index ETFs
iShares S&P MidCap 400 Index Fund (NYSEARCA:IJH)
iShares Russell Midcap Index Fund (NYSEARCA:IWR)
iShares Morningstar Mid Core Index Fund (NYSEARCA:JKG)
SPDR DJ Wilshire Mid Cap ETF (EMM)
Vanguard Mid-Cap ETF (NYSEARCA:VO)

Mid Cap Dividend ETFs
WisdomTree MidCap Dividend Fund (NYSEARCA:DON)

Mid Cap Earnings ETFs
WisdomTree MidCap Earnings Fund (NYSEARCA:EZM)

Mid Cap Quant Strategy ETFs
PowerShares Dynamic Mid Cap Portfolio (PJG)
Claymore/Zacks Mid-Cap Core (NYSEARCA:CZA)

Mid Cap Equal-Weight Index ETFs
First Trust Mid Cap Core AlphaDEX Fund (NASDAQ:FNX)

Leveraged 2X and 3X Mid Cap ETFs
ProShares Ultra MidCap400 ETF (NYSEARCA:MVV)
Rydex 2x S&P MidCap 400 (RMM)
Direxion Daily Mid Cap Bull 3X Shares (MWJ)
ProShares UltraPro (3X) S&P MidCap 400 (NYSEARCA:UMDD)

Mid Cap Short and Leveraged 2X and 3X Short ETFs
ProShares Short MidCap400 ETF (NYSEARCA:MYY)
ProShares UltraShort MidCap400 ETF (NYSEARCA:MZZ)
Rydex Inverse 2x S&P MidCap 400 ETF (RMS)
Direxion Daily Mid Cap Bear 3X Shares (MWN)
ProShares UltraPro Short (3X) S&P MidCap 400 (NYSEARCA:SMDD)

What Are They?

  • The definition of mid cap stocks varies by index provider. For example, S&P defines "mid cap" as companies with a market cap of $1 billion to $4.5 billion, while Dow Jones takes the largest 5,000 stocks and places stocks ranked 501 to 1,000 in the Wilshire Mid-Cap Index.
  • The ETFs in the list provide three fundamentally different approaches to investing: (1) traditional market-cap weighted indexing, (2) fundamental weighting based on earnings or dividends, and (3) rules-based "quant" investing, such as selecting stocks based on P/E ratios and other quantitative metrics.
  • Leveraged and short ETFs use traditional market-cap based indexes, and offer vehicles to bet against the index or to increase exposure to the index above 100%.

Why & How To Use Them

  • Long term investors looking to build an ETF portfolio need to decide how many ETFs to use to cover US stocks. One option is to use 3 ETFs covering large cap/mid cap/small caps.
  • Traditional index ETFs tend to be cheap (ie. have low expense ratios) and liquid. That makes them suitable for short-term traders as well as longer term investors.
  • Market-cap-defined ETFs are also suitable for hedging. For example, if you significant illiquid exposure to a single stock, you can hedge that exposure by selling short an ETF of the suitable market cap. Note, however, that shorting carries risks and disadvantages, including the requirement to pay dividends, and that capital gains will be short term (unless you use a short ETF).

What to Look Out For

  • There are significant differences in composition and methodology between the traditional index ETFs and the more exotic ETFs.
  • The cheapest ETFs (ie. those with the lowest expense ratios) are the traditional market cap weighted index ETFs. They're also the most tax efficient, because market cap weighting tends to result in low turnover in the underlying stocks.
  • The Morningstar series ETFs may be less liquid than other ETFs. Morningstar was relatively late to the ETF market and by the time they arrived the Morningstar series ETFs seemed redundant to many people, potentially resulting in lower liquidity and wider buy-sell spreads.
  • Vanguard's ETFs have a different structure from other ETFs, and may be less tax efficient. See Further Reading below.

Further Reading

This page is part of The Seeking Alpha ETF Selector which sorts ETFs by type, highlights how to use them and what to look out for, and provides links to articles that discuss key issues for investors.