Mid-Cap ETFs To Take Lead Ahead?

Includes: IJJ, JKI, RFV
by: Zacks Funds

Mid-caps have mostly been overlooked investing options. These securities with the middle-of-the-path approach are viewed as big and safe compared to the highly volatile small-cap exposure. But when compared to the stability of the large-caps these are relatively too risky and uncertain. However, investors ignoring this key segment of the investing spectrum should note that lately the rally in the mid-cap ETFs has taken root.

Why Are Mid-Caps Gaining Attention?

The global investing backdrop is likely to be vulnerable this week with all eyes on the June 23 referendum deciding on whether Britain will be in or out of the European Union (EU). Brexit (if it happens) is expected to have a long-standing impact on the Eurozone as well as the global economy. The event also has the power to derail the Fed policy decision.

Last week, polls showed that the 'leave' group had a significant lead over the 'remain' cohort though the trend bucked this week. Recent polls revealed a slight lead for the 'remain' group.

Whatever the case, the global market will be choppy in the days ahead, keeping U.S. stocks with substantial international exposure on the edge. And if Britain does not exit the EU, then international turbulence will perhaps ease, but there will be no respite to the U.S. economy.

This is because the Fed flared up concerns over the health of the domestic economy after trimming 2016 GDP estimate to 2% from 2.2%. The Fed also lowered the number of potential hikes in each of 2017 and 2018 from four to three.

While the Fed still expects rates at 0.9% by the end of 2016, it pared the estimate for the funds rate for 2017 to 1.6% from the 1.9% projection in March. In fact, the Fed funds rate for the long run was slashed to 3% from 3.3%.

In fact, worries over the U.S. economy will be in place until the June job data releases and comes in at the stronger side. Understandably, the cut in U.S. growth projections had an appalling impact on small-cap investing which is largely tied to the domestic economy.

So, all in all, the situation was not favorable either for small caps due to the ongoing moderation in the U.S. economy, or for the large caps due to the shaky global economy. Against this backdrop, mid-cap ETFs appear slightly more intriguing as these offer the best of both worlds, allowing both growth and stability in a portfolio.

Value ETFs to Play?

Investors should note that there is tilt in interest toward value ETFs as the broader market has remained disruptive and investors seek safety in their portfolio.

Outperforming Mid-Cap Value ETFs in Focus

Below we highlight a few mid-cap value ETFs that are leading the way.

Guggenheim S&P MidCap 400 Pure Value ETF (NYSEARCA:RFV)

The $122.2-million fund picks those S&P Midcap 400 companies that have strong value characteristics. The maximum weight a stock gets in the fund is 3.50%. Industrials, consumer discretionary, financials, materials and information technology have double-digit weight in the fund. The 98-stock fund charges 35 bps in fees. The fund advanced over 2.4% in the last two trading days (as of June 20, 2016).

iShares Morningstar Mid-Cap Value (NYSEARCA:JKI)

The $168-million ETF looks to track the performance of Morningstar Mid Value Index. This $180-stock fund has double-digit exposure in financials (22.6%), utilities (15.2%), energy (12.3%), IT (11.6%), consumer discretionary (11.1%) and industrials stocks (10%). The fund charges 30 bps in fees and yields 2.35% annually (as of June 20, 2016). The fund added 2.1% in the last two trading days (as of June 20, 2016).

iShares S&P Mid-Cap 400 Value ETF (NYSEARCA:IJJ)

The $4.58-billion ETF holds 308 stocks in its basket. The fund invests 25.7% of its assets in financial stocks while industrials (16.7%), IT (13.1%), consumer discretionary (10.3%), Utilities (10%) have double-digit exposure in the fund. The fund added more than 1.5% in the last two trading days (as of June 20, 2016).

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