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Vanguard Mid-Cap ETF Has A Slightly Inferior Growth Profile Than Its Large-Cap Peer Fund

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Ploutos Investing


  • Vanguard Mid-Cap ETF invests in mid-cap U.S. stocks.
  • The ETF has little concentration risk as no one stock represent over 1.1% of its total portfolio.
  • VO has better growth profile than its small-cap peer, but has a slightly inferior growth profile than its large-cap peer.

ETF Overview

Vanguard Mid-Cap ETF (NYSEARCA:VO) owns a portfolio of mid-cap U.S. stocks. The fund seeks to tracks the result of the CRSP U.S. Mid-Cap Index. The fund has little concentration risk as its top-10 holdings only represent about 8.6% of its total portfolio. It also has better growth profile than its small-cap peer. However, its growth profile is slightly inferior than its large-cap peer. Given the fact that large-cap stocks tend to have better balance sheet and competitive positions than mid-cap stocks (we are going through a rough period of uncertainty caused by COVID-19), it may be a less risky option to invest in funds that own large-cap stocks.

Fund Analysis

A diversified portfolio of mid-cap stocks

VO tracks the CRSP U.S. Mid-Cap Index. This index selects U.S. stocks that fall between the top 70% - 85% of investable market capitalization. The index applies a market-cap weighted approach to determine the weighting of each stock in the index. This strategy results in a portfolio of about 340 stocks. VO rebalances its portfolio once every quarter. The index’s market-cap weighted approach helps it to reduce its turnover rate. In fact, its turnover rate was only about 15% in the past year. This also helps Vanguard to keep its expense ratio low (only about 0.04%). Since VO targets mid-cap stocks, concentration risk is low. As can be seen from the table below, its top-10 holdings only represent about 8.6% of its total portfolio. Its top holding Newmont (NEM) only represent about 1.1% of the total portfolio. Therefore, a weak performance of any single stock will have limited impact on VO’s portfolio.

Source: Vanguard Website

VO has good growth profile and better financial health than its small-cap peer

Mid-Cap stocks such as stocks in VO’s portfolio are usually companies that have established

This article was written by

Ploutos Investing profile picture
I am a value focused investor. Stocks rise and fall for many different reasons that we often cannot predict. Eventually, it is those companies with a wide moat and the ability to generate cash flow that prevail. Therefore, my investment focus is to find value stocks that are able to generate cash flow, with sustainable dividends and provide growth over time. I focus my attention on analyzing large-capped dividend growth stocks, REITs and ETFs. I aim at providing a quarterly update and insights on stocks I follow. Please feel free to browse the articles that I wrote and provide any comments.

Analyst’s 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.

This is not financial advice and that all financial investments carry risks. Investors are expected to seek financial advice from professionals before making any investment.

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Comments (3)

I know you're a fan of XMLV, how do you feel like it stacks up against VO?
Taking a snapshot comparison of funds with different capitalization profiles doesn’t make sense to me. We know that in recent years large caps outperformed. At other times, small or mid caps outperform. Past performance means little and nothing is learned here. Anyway, it is simple enough to get both or all three segments or buy the total market. You cannot assume outperformance of large caps relative to smaller will be true going forward even if large caps are often better positioned.
I wonder if liability protections for employers (being discussed in DC) could disproportionately impact large/mid/small cap stocks. Very important for the economy, or there will be a plague of lawyers worse than COVID-19. It seems to me that large caps are the deep pocket targets, but have the capital to make a good legal defense. Small caps are too small for the lawyers to go after, in most cases. Will mid-caps avoid trouble as well, or will they need liability protection even more than the other groups?
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