VO: Midcap ETFs’ Return to ‘Sweet Spot’
Midcap ETFs offer an attractive growth alternative to tech-driven large caps.
Midcap ETFs have been called the “sweet spot” of equity investing because of their potential to outperform large cap stocks with less market risk than small caps.
But recent dominance of mega-cap tech stocks, coupled with analyst praise of small caps as a smart alternative, has pushed that endearing term for midcaps beneath the surface.
That is, until now.
While the Magnificent 7-heavy ETFs have had an impressive run, and small cap ETFs appear to be waiting behind the scenes to replace them in the spotlight, midcap funds present a middle ground of reasonable valuations and less market risk in the 2024 market landscape.
What Is a Midcap ETF?
A midcap ETF is a type of mid-cap exchange traded fund that invests in stocks of companies with a market capitalization between a few billion dollars and $10 billion. These companies are generally larger than small-cap companies but not yet established giants like large-cap companies.
Midcap ETFs often track a benchmark index, such as the S&P MidCap 400 Index, and typically weight their holdings based on market capitalization. This means companies with a larger market value within the mid-cap range have a greater influence on the overall performance of the ETF.
Mid-cap companies are often seen as having good long-term growth potential compared to larger, more established companies while exhibiting lower volatility than small-cap stocks.
Top Midcap ETFs by AUM
Ticker | Fund | AUM | Expense Ratio | 1-Yr Return |
IJH | iShares Core S&P Mid-Cap ETF | $85.3B | 0.05% | 14.12% |
VO | Vanguard Mid-Cap Index Fund | $65.0B | 0.04% | 11.91% |
IWR | iShares Russell Mid-Cap ETF | $34.3B | 0.19% | 12.68% |
MDY | SPDR S&P MidCap 400 ETF Trust | $21.8B | 0.24% | 13.83% |
VOE | Vanguard Mid-Cap Value ETF | $16.3B | 0.07% | 11.24% |
Data as of July 11, 2024. Past performance is no guarantee of future results.
iShares Core S&P Mid-Cap ETF
The iShares Core S&P Mid-Cap ETF (IJH) passively follows the S&P MidCap 400 Index, a market capitalization-weighted index composed of 400 U.S. mid-cap companies.
- Assets under management: $85.3 billion
- Expense ratio: 0.05%
- 1-year return: 14.12%
Vanguard Mid-Cap Index Fund
The Vanguard Mid-Cap Index Fund (VO) is popular among do-it-yourself investors for its combination of low expenses and broad diversification. VO tracks the CRSP US Mid Cap Index, a broad mix of over 300 middle-sized U.S. companies.
- Assets under management: $65 billion
- Expense ratio: 0.04%
- 1-year return: 11.91%
iShares Russell Mid-Cap ETF
The iShares Russell Mid-Cap ETF (IWR) tracks a market-cap-weighted index of the 800-smallest companies in the Russell 1000, venturing deeper into the large-cap space compared to other midcap ETFs.
- Assets under management: $34.3 billion
- Expense ratio: 0.19%
- 1-year return: 12.68%
SPDR S&P MidCap 400 ETF Trust
The SPDR S&P MidCap 400 ETF Trust (MDY) is one of the first ETFs to debut in the U.S. and is one of several funds tracking the S&P MidCap 400 Index. Unlike most competitors, MDY uses the older unit investment trust structure, which requires a direct replication of its underlying index.
- Assets under management: $21.8 billion
- Expense ratio: 0.24%
- 1-year return: 13.83%
Vanguard Mid-Cap Value ETF
The Vanguard Mid-Cap Value ETF (VOE), the largest ETF that focuses on the value segment of the midcap U.S. equity space, aims to track the performance of the CRSP US Mid Cap Value Index.
- Assets under management: $16.3 billion
- Expense ratio: 0.07%
- 1-year return: 11.24%
Bottom Line on Midcap ETFs
Midcap ETFs can be a suitable option for investors seeking exposure to the growth potential of mid-sized companies and are comfortable with a higher level of risk compared to the typical broad market large-cap stock index fund.
Some investors prefer midcap funds to small-cap ETFs because they can fulfill an aggressive objective alternative to large-cap ETFs without the greater market risk associated with small-cap stocks.