One sector of equity securities that gets little attention is the mid-cap group. Mutual fund marketing goes to great lengths to promote large-cap funds and small-cap funds competing for the same attention, and they usually get it. The area between these two tends to be overlooked.
ETFs that fill this overlooked space are not as numerous, either. Thus, the ETFs in this space have a competitive advantage by being the pioneers of this forgotten segment.
One such pioneer is the Guggenheim Mid-Cap Core ETF (NYSE:CZA). CZA was started on April 2, 2007, and has endured the turbulent market movements of the past few years. The top 10 holdings and weightings are listed below:
- AmerisourceBergen (NYSE:ABC): 2.44%
- Sara Lee (NYSE:SLE): 2.38%
- Conagra Foods (NYSE:CAG): 2.19%
- Mattel (NASDAQ:MAT): 2.05%
- Fortune Brands (NYSE:FO): 2.02%
- Perrigo (NASDAQ:PRGO): 2.01%
- Liberty Media Corp-Interactive (NASDAQ:LINTA): 1.99%
- Oneok Partners LP (NYSE:OKS): 1.97%
- Plains All American Pipeline (NYSE:PAA): 1.94%
- DTE Energy (NYSE:DTE): 1.91%
CZA maintains a balanced approach, boasting a fully diversified group of holdings — the largest holding is reported at 2.44%. The results of this ETF as of Aug. 31:
- 1 month: -6.33%
- 3 months: -10.91%
- YTD: -0.63%
- 1 year: 19.50%
- 3 years: 6.62%
These results might not appear attractive on their own. It is when CZA is compared to other programs during the same time frame that the value of this approach is recognized.
Another ETF that occupies this space is the WisdomTreed MidCap Dividend Fund (NYSE:DON). DON also uses a diversified approach and adds dividends from the issuing stocks as a qualifier. DON was established on June 16, 2006, and now has a five-year track record. The top 10 holdings and weightings are listed below:
- NiSource (NYSE:NI): 1.35%
- Constellation Energy (NYSE:CEG): 1.14%
- The Macerich Co. (NYSE:MAC): 1.13%
- Plum Creek Timber (NYSE:PCL): 1.13%
- Wisdom Tree Large Cap Dividend Fund (NYSE:DLN): 1.07%
- Pepco Holdings (NYSE:POM): 1.06%
- Oneok Inc. (NYSE:OKE): 1.05%
- Pinnacle West Capital (NYSE:PNW): 1.03%
- Scana Corp (NYSE:SCG): 1.02%
- Pitney Bowes (NYSE:PBI): 0.99%
The results of this ETF as of Aug. 31:
- 1 month: -4.28%
- 3 months: -8.92%
- YTD: 1.24%
- 1 year: 19.94%
- 3 years: 5.20%
- 5 years: 2.55%
This is another example of how mid-cap programs help diversify a portfolio by keeping risk under control so as to avoid large negative returns for extended periods of time.
The last mid-cap ETF to explore is the Select SPDR S&P MidCap 400 ETF (NYSE:MDY). MDY was established on Aug. 18, 1995, and has endured a wide range of market cycles. MDY uses a similar approach as the previous two ETFs and takes on a position with minimal risk to the overall portfolio. The top 10 holdings and weightings are listed below:
- Green Mountain Coffee Roasters (NASDAQ:GMCR): 1.13%
- F5 Networks (NASDAQ:FFIV): 1%
- Vertex Pharmaceuticals (NASDAQ:VRTX): 0.93%
- Netflix (NASDAQ:NFLX): 0.85%
- Newfield Exploration (NYSE:NFX): 0.84%
- Edwards Lifesciences (NYSE:EW): 0.82%
- Joy Global (NASDAQ:JOYG): 0.8%
- Borg Warner (NYSE:BWA): 0.76%
- Money Market (NYSE:LZ): 0.75%
- Dollar Tree (NASDAQ:DLTR): 0.7%
The results of this ETF as of Aug. 31:
- 1 month: -7.16%
- 3 months: -12.65
- YTD: -2.93%
- 1 year: 22.50%
- 3 years: 3.67%
- 5 years: 4.33%
MDY is another example of how taking a position in mid-cap stocks can help an overall portfolio ride out the downdrafts that have dominated headlines in the past few years.
Jeffrey L. Stouffer is the principal of Mercantile Capital Group, a Herndon, Va.-based introducing broker registered with the CFTC and a member of the National Futures Association. He can be reached at mercapitalgroup@aol.com. As of this writing, he did not own any holdings in the aforementioned funds.
