The Best ETF For Mid-Cap Exposure

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Includes: CZA, DON, EZM, FNX, IJH, IVOO, IWR, JKG, MDY, SCHM, VO, XMLV
by: Evin Rohrbaugh

Summary

The mid-cap sector has seen a rise with the initial Trump rally, and there is an array of ETFs available to gain exposure to the sector.

Only four of these funds are what I would consider low-cost in terms of expenses.

SCHM is my top pick for mid-cap exposure but VO is not far behind.

With the boom of the Trump rally, the mid-cap sector has performed as most would expect it to, but this depends slightly on which index is being used. Higher growth than large caps but less than small caps.

Let's look at these indices from a longer-term perspective, starting at the bottom of the financial crisis.

When you look from a long-term point of view, the mid-cap sector has given the performance most would expect of it, which is a mix between the growth of smaller caps and the stability of larger companies.

So let's take a look at the ETF choices with mid-cap companies. I've chosen to exclude growth and value-oriented funds and instead will focus on general mid-cap ETFs.

Fund

Total Assets

12-Mo Yield

Expense Ratio

Number of Holdings

Commission-Free Trading

iShares Core S&P MidCap ETF (NYSEARCA:IJH)

38.41 billion

1.53%

0.07%

400

TD Ameritrade, Fidelity, and Firstrade

SPDR S&P MidCap 400 ETF (NYSEARCA:MDY)

20.3 billion

1.25%

0.25%

399

none

Vanguard Mid Cap ETF (NYSEARCA:VO)

18.41 billion

1.50%

0.08%

344

Vanguard and TD Ameritrade

iShares Russell Mid-Cap Index Fund (NYSEARCA:IWR)

15.33 billion

1.63%

0.20%

797

none

Schwab U.S. Mid-Cap ETF (NYSEARCA:SCHM)

3.19 billion

1.33%

0.05%

504

Schwab

WisdomTree MidCap Dividend Fund (NYSEARCA:DON)

2.82 billion

2.41%

0.38%

406

ETrade

PowerShares S&P MidCap Low Volatility ETF (NYSEARCA:XMLV)

938.20 million

1.64%

0.25%

75

none

WisdomTree MidCap Earnings Fund (NYSEARCA:EZM)

778.36 million

1.51%

0.38%

572

ETrade

First Trust Mid Cap Core AlphaDEX ETF (NASDAQ:FNX) 697.44 million 1.00% 0.63% 449 none

Vanguard S&P Mid-Cap 400 ETF (NYSEARCA:IVOO)

693.63 million

1.31%

0.15%

401

Vanguard

iShares Morningstar Mid-Cap ETF (NYSEARCA:JKG)

735.45 million

1.68%

0.25%

201

none

Guggenheim Mid-Cap Core ETF (NYSEARCA:CZA)

161.57 million

1.75%

0.65%

95

none

As always I put the emphasis on expenses first, and then go from there. So I'll scrap all but four of these funds, IJH, VO, SCHM, and IVOO. Passively tracking a mid-cap index shouldn't require more than 10 basis points in expenses.

In the case of DON, I do like the high dividend strategy and the way the ETF is structured. This still doesn't justify paying 38 basis points in expenses to what is still a passively managed fund, even though WisdomTree is the creator of the index.

Below is the performance of the four remaining ETFs.

In this case, I like SCHM the most, although VO and IJH both have a lot going for them as well. There is no essential reason to hold IVOO over VO, both funds are from Vanguard but the benchmarks are slightly different. VO tracks the S&P 400 while IVOO tracks the CRSP US Mid Cap Index. So IVOO gives you more companies but at a higher cost.

Let's look at more details on SCHM.

Top Ten Holdings and %

Top Ten Sectors and %

Top Ten Countries and %

Albemarle Corp. (ALB) -0.4%

Financials-16.1%

United States-97.99%

Comerica Inc. (CMA) -0.4%

Information Technology-15.8%

United Kingdom-0.69%

CenterPoint Energy, (CNP) Inc. -0.4%

Industrials-15.3%

China-0.24%

DXC Technology (DXC) -0.8%

Consumer Discretionary-14.0%

Ireland-0.24%

First Republic Bank (FRC) -0.5%

Real Estate-11.2%

Switzerland-0.18%

TechnipFMC PLC-0.6%

Health Care-9.5%

Puerto Rico-0.16%

Huntington Bancshares (HBAN) - 0.5%

Materials-6.3%

India-0.12%

Idexx Laboratories, Inc. (IDXX) -0.5%

Energy-5.6%

n/a

KLA-Tencor Corp. (KLAC) -0.5%

Utilities-4.9%

n/a

Mettler Toledo International Inc. (MTD) -0.5%

Consumer Staples-3.3%

n/a

SCHM tracks the Dow Jones US Mid-Cap Total Stock Market index, which has had similar performance to other mid-cap indices in the long run.

Conclusion

When you consider the fact that SCHM has the lowest costs in this category, as well as commission-free trading on the Schwab platform, this fund is the most appealing choice. VO is not far behind with its low costs and likewise commission-free trades through Vanguard. It is a very fortunate situation that these two ETF providers are continually lowering their costs in order to attract investors. This is a win-win for the consumers of ETFs, and I wouldn't be surprised to see these two particular funds have their costs dropped even more in the next couple of years.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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