5 Top-Ranked Mid-Cap ETFs for Outperformance

Though Wall Street has strongly rebounded from Mar 23 lows, with major indices exiting the bear territory, the impact of COVID-19 has been alarming on the economy as depicted by the latest data.

This is especially true as the pandemic has erased all the jobs created in the United States since the Great Recession in just four weeks. The United States lost 701,000 jobs in March, making it the worst month for American jobs since the depths of the Great Recession. Retail sales suffered their worst monthly drop on record while industrial production saw the steepest decline since early 1946. Meanwhile, the manufacturing sector contracted in March with activity hitting its lowest level since 2009 while consumer confidence dropped to a near three-year low last month.

Additionally, the housing market, which had been firing on all cylinders before the lockdown, started to take a beating. New home construction declined the most in March since 1984 and homebuilder confidence plunged the most in 30 years of record-keeping in April, according to the monthly National Association of Home Builders/Wells Fargo Housing Market Index.

With the economy getting worse, the International Monetary Fund warned that the coronavirus pandemic is likely to trigger the worst recession since the Great Depression. It predicts the global economy to shrink 3% this year, before rebounding in 2021. The U.S. economy is expected to contract almost double the global drop forecast with GDP falling 5.9% in 2020 (read: Why You Should Invest in Low Volatility ETFs).

However, initiatives like social distancing and stay-at-home to contain the virus spread are clearly paying off, leading to a slowdown in the number of cases. This has lifted investors’ sentiment lately and raised hopes for re-opening of the economy anytime soon. Further, increased progress of drugmakers to develop COVID-19 treatment as well as improving prospects of a vaccine added to the strength. Moreover, the large fiscal and monetary stimulus from the Federal Reserve and the government will provide further boost to the stock market.

Against such a backdrop, investors seeking to capitalize on the rebounding fundamentals but worried about COVID-19 impacts should consider mid-cap stocks in the basket form.

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, allowing growth and stability in portfolios simultaneously. Additionally, these middle-of-road securities have relatively less exposure to international markets compared to large caps, thereby making them good bets in the current market turmoil. Further, mid-cap stocks are less volatile than small caps. Thus, these stocks are currently a safer option and have higher upside potential (see: all the Mid Cap ETFs here).

While there are several ETFs available in the space, we have highlighted some solid choices that have a strong Zacks ETF Rank #1 (Strong Buy) or 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.

iShares Core S&P Mid-Cap ETF IJH

This is the most popular ETF in the mid-cap space with AUM of $37.2 billion and average daily volume of 1.7 million shares. It tracks the S&P MidCap 400 Index and holds 401 stocks in its basket with none accounting for more than 1.04% share. The fund charges 6 bps in annual fees and has a Zacks ETF Rank #2.

Vanguard Mid-Cap ETF VO

This ETF tracks the CRSP US Mid Cap Index, charging investors 4 bps in fees per year. It has amassed $26.1 billion in its asset base while seeing a solid volume of about a million shares per day on average. The fund holds 339 stocks with a well-diversified portfolio as each firm holds no more than 1.1% of the total assets. The product has a Zacks ETF Rank #2 (read: Optimism Back in Wall Street? ETFs Areas to Win the Most).

iShares Russell Mid-Cap Growth ETF IWP

With AUM of $10.2 billion, this ETF offers exposure to mid-sized U.S. companies whose earnings are expected to grow at an above-average rate relative to the market by tracking the Russell MidCap Growth Index. It holds 405 securities in its basket with none accounting for more than 2. 2% of the total assets. The product charges 24 bps in annual fees and trades in average daily volume of 424,000 shares. The product has a Zacks ETF Rank #1.

Vanguard Mid-Cap Growth ETF VOT

This fund follows the CRSP US Mid Cap Growth Index, holding 1158 securities with none accounting for more than 2% share. It has managed nearly $6.2 billion in its asset base and trades in good volume of around 198,000 shares a day on average. The ETF charges 7 bps in annual fees and has a Zacks ETF Rank #1.

iShares S&P Mid-Cap 400 Growth ETF IJK

This product also targets growth segment of the mid-cap space and follows the S&P MidCap 400 Growth Index. With AUM of $5.4 billion, it holds a basket of 234 stocks with none accounting for more than 1.9% of the assets. IJK charges investors 24 bps in annual fees while trading in average daily volume of 128,000 shares. It has a Zacks ETF Rank #2.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.