There are perks to investing in the middle ground.
Many investors overlook the middle category of publicly traded stocks that are neither too massive nor too small — mid-cap companies that are typically valued between $2 billion and $10 billion. Some investors view these stocks as the ideal opportunity for both growth and stability, with deep enough pockets to no longer be called startups but still small enough that they have a long way to grow. If you’re looking to invest in this middle ground of mid-cap stocks, here are nine different exchange-traded funds that can provide easy access.
Vanguard Mid-Cap Index ETF (ticker: VO)
Among the largest mid-cap ETFs on Wall Street, this Vanguard index fund commands more than $33 billion in ETF total net assets. And as a result of it massive scale and passive approach, VO is able to offer a mid-cap strategy to investors for an incredibly low expense ratio of just 0.04%, or $4 annually on every $10,000 invested. Consisting of about 350 total stocks and with less than 10% of assets across its top 10 positions, this ETF is a simple way to play the middle tier of publicly traded companies.
Vanguard Mid-Cap Value ETF (VOE)
Taking a more tactical approach, VOE uses a value screening methodology to cut its list of holdings down to about 200 or so positions by prioritizing metrics such as share price to book value. Of course, that means you naturally find a bias toward companies like regional banks or industrial businesses with tangible assets to provide a foundation of value. As a result, financials make up the top sector in this ETF with about 25% of the total portfolio. Though this is a bit more specific than the flagship Vanguard mid-cap ETF, it’s still a leader in the space with $9 billion in ETF total net assets.
WisdomTree U.S. MidCap Dividend ETF (DON)
Just as some investors like the certainty of substantial assets to back up their stocks, there are many out there who insist on the stocks in their portfolio paying them a dividend as proof that operations are strong. After all, a company can’t afford to deliver a share of its profits to shareholders if there are no profits to speak of. This mid-cap fund holds about 330 stocks but excludes the largest dividend payers you may be familiar with to generate a more significant 3.5% yield via consumer names like Campbell Soup (CPB) and smaller financial firms like mid-sized insurer CNA Financial Corp (CNA).
SPDR Russell 1000 Yield Focus ETF (ONEY)
A more targeted dividend ETF, this SPDR fund is benchmarked to the Russell 1000 index of mid-cap stocks and then applies a smart beta screening technique to pick those with the biggest income potential. For those unfamiliar with investing Greek, beta is a ratio that measures an asset’s risk profile. The result of this additional screening is a smaller overall portfolio than the broad Russell 1000, with fewer than 290 holdings, and a total yield of 4.1%. The bias is again toward consumer discretionary and financials, with the two sectors making up more than 40% of the fund’s portfolio. But the dividend potential beats that of many large-cap funds — and even many dividend-focused ETFs, too.
Nuveen ESG Mid-Cap Growth ETF (NUMG)
This Nuveen fund is a focused play on the second tier of fast-growing names that satisfy certain environmental, social and governance criteria, ranked by size — but not by potential for future expansion. In fact, in many ways by cutting out the more mature names on Wall Street, you can be more aligned with a true growth strategy as these picks really gain steam to become tomorrow’s dominant names. Take big data and network servicer Splunk (SPLK), which has jumped by more than 30% this year thanks to a surge in remote working. With more than a third of assets in the tech sector, these are the kind of names you’ll find in NUMG.
Invesco S&P MidCap Momentum ETF (XMMO)
Slightly different than the prior growth fund, XMMO is focused not on fundamentals like revenue growth but more on the technical indicators of momentum in a stock itself. This is an important distinction because some stocks have great earnings but can still fall short, and firms deep in the red can see short periods of outperformance when the chips fall right. XMMO focuses on this momentum, piling into only about 70 stocks. This focus has paid off in some cases, such as SolarEdge Technologies (SEDG), which has surged about 70% so far in 2020. Momentum can swing both ways, however, so investors in this ETF should be prepared for volatility if the market takes a turn.
Pacer Trendpilot US Mid Cap ETF (PTMC)
A unique mid-cap investment fund is the Pacer Trendpilot ETF that allocates your money to middle-valuation stocks when the market is favored based on technical indicators — and when it’s not, it instead allocates its portfolio 50% or more into rock-solid U.S. Treasury bonds. This philosophy may not sit well with buy-and-hold proponents who simply want to take what the market gives them. But considering how some investors are worried about an economic slowdown that could undercut the market, the peace of mind may be worth it if you’re concerned with protecting profits as much as chasing growth.
John Hancock Multifactor Mid Cap ETF (JHMM)
If you don’t like to slice and dice the mid-cap universe too much, then this $1.5 billion John Hancock fund offers a “multifactor” approach that makes sure you have your bases covered. With nearly 700 total holdings, there likely isn’t a mid-sized name out there that doesn’t have a spot in this fund, and occasional restructuring ensures the largest stocks graduate out and the small names that are growing are added. Though slightly biased toward tech, with about 20% in the sector, four other sectors have more than 11% allocations each for a pretty diversified play on this class of stocks.
First Trust Mid Cap Core AlphaDEX Fund (FNX)
This AlphaDEX fund uses an “enhanced” index that ranks stocks in the Nasdaq 600 mid-cap index according to selective criteria, including value to price, cash flow to price and return on assets. The ETF then weeds out stocks based on these metrics and keeps roughly 450 of the investments it deems to be at the top of the mid-cap universe. The holdings are pretty equally weighted — the largest holding being Boston Beer Co. (SAM) — with no single investment making up more than about 0.6% of the portfolio. That leads to a much more diversified list of holdings than many other mid-cap funds.
The best mid-cap ETFs to buy now:
— Vanguard Mid-Cap Index ETF (VO)
— Vanguard Mid-Cap Value ETF (VOE)
— WisdomTree U.S. MidCap Dividend ETF (DON)
— SPDR Russell 1000 Yield Focus ETF (ONEY)
— Nuveen ESG Mid-Cap Growth ETF (NUMG)
— Invesco S&P MidCap Momentum ETF (XMMO)
— Pacer Trendpilot US Mid Cap ETF (PTMC)
— John Hancock Multifactor Mid Cap ETF (JHMM)
— First Trust Mid Cap Core AlphaDEX Fund (FNX)
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9 of the Best Mid-Cap ETFs to Buy originally appeared on usnews.com
Update 07/29/20: This story was published at an earlier date and has been updated with new information.
