Mighty Midcap ETFs

This article is part of a regular series of thought leadership pieces from some of the more influential ETF strategists in the money management industry. Today's article is by Craig Israelsen, Ph.D., creator of the 7Twelve portfolio, consultant to 7Twelve Advisors, LLC and executive-in-residence in the Financial Planning Program at Utah Valley University.

Over the last 25 years (1996-2020), the S&P Midcap 400 Index outperformed the S&P 500 Index and the S&P SmallCap 600 Index. Each of these three “core” indexes is considered a blend index (meaning a blend a value and growth).

From 1996 through the end of 2020, the S&P Midcap 400 Index outperformed the S&P SmallCap Index by roughly 100 bps (with fractionally higher volatility) and also outperformed the S&P 500 Index by roughly 200 bps with lower volatility.

In spite of that, roughly 10 times more money is invested in large cap U.S. blend funds (mutual funds and ETFs) than in midcap blend U.S. equity funds ($4.8 trillion in U.S. large blend funds versus $493 billion in U.S. midcap blend funds as of 12/31/2020).

These three S&P indexes provide a broad view of the performance of U.S. equities—but from a “blend” perspective. In the tables below, I’ve highlighted the top five value, growth and blend ETFs over the past three years across U.S. large cap, midcap and small cap.

As you scan the results, it’s clear that midcap ETFs in the blend and growth categories compete very favorably with large cap blend and growth ETFs. The recent three years has been much kinder to large cap funds.

If you’re a long-term U.S. equity investor, a midcap ETF belongs in your portfolio.

Contact Craig Israelsen at [email protected]