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5 Top-Ranked Mid-Cap ETFs for Outperformance

The stock market has been witnessing volatility of late triggered by surging bond yields, which has made investors jittery. It has sparked fears of overvaluation especially in the high growth sector like technology, which has seen a huge surge during the pandemic.

However, encouraging updates on COVID-19 vaccines development, rapid vaccinations as well as fiscal stimulus raised hopes of a swift economic recovery. With Johnson & Johnson JNJ becoming the third authorized COVID-19 vaccine candidate in the United States, President Joe Biden expects to have enough vaccines for all adults by the end of May.

On the stimulus front, the U.S. House of Representatives last weekend passed a $1.9 trillion stimulus package, namely the American Rescue Plan Act of 2021. The package will now move to the Senate for further consideration. The twin news has buoyed the economic outlook, thereby bolstering investors’ risk appetite (read: ETF Strategies to Gain From the Stimulus & Vaccine Optimism).

Further, the latest upbeat data infused confidence into the economy. Notably, U.S. manufacturing activity increased to a three-year high in February amid acceleration in new orders. U.S. construction spending surged to a record high in January, boosted by strong private and public outlays while consumer spending rose the most in seven months in January, indicating that the economy is growing faster than expected. The combination of factors will result in increased industrial and manufacturing activity as well as a pickup in consumer demand. Strong corporate earnings as well as signs of a healing labor market also bode well for economic growth and the stock market.

Against such a backdrop, investors seeking to capitalize on the bullish fundamentals but worried about rising yields should consider mid-cap stocks in the basket form. In fact, the mid-cap space has been outperforming over the past month. The ultra-popular ETF, iShares Core S&P Mid-Cap ETF IJH, tracking the mid-cap stocks has gained 4.7% in the same time frame compared to growth of 1.3% for SPDR S&P 500 ETF SPY and 3.8% for the small cap iShares Russell 2000 ETF IWM.

Why Mid-Caps?

While large companies are normally known for stability and the smaller ones for growth, mid-caps offer the best of both worlds, simultaneously allowing growth and stability in a portfolio. As such, these securities are safer options and have the potential to move higher than the large and small-cap counterparts in turbulent times. Further, mid-cap stocks are less volatile than small caps (see: all the Mid Cap ETFs here).

While there are several ETFs available in the space, we have highlighted five that have been at the forefront of the mid-cap rally over the one-month period and have a solid Zacks ETF Rank #2 (Buy), suggesting outperformance in the months ahead. These have potentially superior weighting methodologies that could allow them to lead the mid-cap space in the months ahead.

Vanguard S&P Mid-Cap 400 Value ETF IVOV – Up 8.2%

This fund tracks the S&P MidCap 400 Value Index, which is composed of the value companies in the S&P 400. It holds a well-diversified basket of 306 stocks with key holding in financials, industrials, consumer discretionary and real estate. The product has amassed $617.3 million and charges 15 basis points (bps) in annual fees.

SPDR S&P 400 Mid Cap Value ETF MDYV – Up 8.1%

With AUM of $1.8 billion, this ETF offers pure exposure to the mid-cap value segment of the U.S. equity market by tracking the S&P Mid Cap 400 Value Index. It holds 307 securities in its basket and charges 15 bps in annual fees. Financials, industrials, consumer discretionary and real estate are the top four sectors with double-digit exposure each (read: Value Outshines Growth: 5 ETF Winners).

iShares S&P Mid-Cap 400 Value ETF IJJ – Up 8%

This product also targets the value segment of the mid-cap space and follows the S&P MidCap 400 Value Index. With AUM of $7.6 billion, it holds a basket of 307 stocks with financials, industrials, consumer discretionary and real estate taking double-digit exposure each. IJJ charges investors 18 bps in annual fees.

Vanguard Mid-Cap Value ETF VOE – Up 6.2%

This ETF follows the CRSP US Mid Cap Value Index, which measures the investment return of mid-capitalization value stocks. It holds 199 stocks in its basket with AUM of $12.5 billion. Consumer discretionary, financials, utilities and industrials are the top four sectors. The fund charges 7 bps in fees per year.

iShares Russell Mid-Cap Value ETF IWS – Up 6%

This product follows the Russell MidCap Value Index. With AUM of $12.5 billion, it holds a basket of 696 stocks with industrials, financials, and consumer discretionary taking double-digit exposure each. IWS charges investors 24 bps in annual fees (read: Industrial ETFs to Gain as US Manufacturing Picks Up Amid Coronavirus).

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Johnson & Johnson (JNJ): Get Free Report
 
SPDR S&P 500 ETF (SPY): ETF Research Reports
 
iShares Russell 2000 ETF (IWM): ETF Research Reports
 
iShares S&P MidCap 400 Value ETF (IJJ): ETF Research Reports
 
iShares Core S&P MidCap ETF (IJH): ETF Research Reports
 
iShares Russell MidCap Value ETF (IWS): ETF Research Reports
 
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