Why Midcap ETFs Worth A Look

July 23, 2018

Comparison Exercise
For example, consider three different midcap ETFs from one single provider, iShares. IJH, the largest, tracks the S&P MidCap 400 Index. (Vanguard, State Street, Invesco, Oppenheimer are among the issuers to also offer ETFs tied to this index). But IJH also screens companies for financial liability in addition to market capitalization size. That methodology gives the fund a small-cap tilt—one that has allowed it to outperform other mid-cap funds in recent months, according to Yadava.

Compare that to IWR, a market-cap-weighted portfolio of the 800 smaller companies in the Russell 1000. That universe of securities means that IWR has somewhat of a larger-cap bias among its top holdings, making it slightly less risky than some other midcap ETFs, according to our data. Year-to-date, IWR has trailed IJH in returns by about 1 percentage point.

And then there’s the iShares Morningstar Mid-Cap ETF (JKG), which has $766 million in assets. JKG is a market-cap-weighted portfolio of securities selected through a multifactor model. The portfolio owns midcap stocks that don’t show either strong growth or strong value characteristics, giving it a less-risky profile. JKG is underperforming its counterparts as a result.


Chart courtesy of StockCharts.com


As is the case with any ETFs—something we at ETF.com are constantly harping on—indexes matter; methodologies matter; portfolio construction matter—even among what’s seemingly market-cap-weighted funds competing in the same segment. Know what you own.

In this particular case, the broader story is midcap stocks are doing well in the current economic environment, offering investors outsized returns relative to large-cap stocks. They might not be as exciting as swimming with the sharks, nor as risky—and possibly rewarding—as diving into a deserted lagoon, but they have an appeal all their own.

And while there are plenty of midcap ETFs to choose from, there are also plenty of potential outcomes depending on the one you choose to own.

Contact Cinthia Murphy at [email protected]


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