On Dec. 3, 2018, InvestorPlace contributor Todd Schriber chose 7 mid-cap dividend ETFs to buy.
These mid-cap stocks are often overlooked by investors, yet they provide some of the best long-term returns. Over the past year, these seven selections averaged an annualized total return of 23.6%, significantly lower than the 32.2% total return by the SPDR S&P 500 ETF Trust (NYSEARCA:SPY).
While mid-cap stocks underperformed compared to large-caps in 2019, the S&P Mid Cap 400 outperformed both the S&P 500 and the S&P Small Cap 600 over the past 15 years. Many of the ETFs to buy for the next decade should be those that invest in mid-cap stocks because, in the long run, these are the stocks that will deliver a combination of capital appreciation and income.
Below, we have a list of mid-cap ETFs to buy. I’ll include at least three of the funds from the 2018 article that I believe will continue to do well for years to come.
Mid-Cap ETFs to Buy: iShares Russell Mid-Cap Value ETF (IWS)
Management Expense Ratio: 0.24%
Total Net Assets: $11.8 billion
Although growth stocks have been the favored flavor of U.S. investors in recent years, value stocks are making a comeback. That’s according to Rob Arnott, chairman of Research Affiliates, an investment firm dedicated to smart beta and asset allocation investing principles.
In December, Arnott said that the tendency of mid-caps underperforming in recent years is about to change and investors should get on board.
“Value has been battered down now for 12 years, most particularly from 2015 to 2019, so the last five years have been daunting. Value is cheap,” Arnott said.
In 2019, the iShares Mid-Cap Value ETF (NYSEARCA:IWS) came painstakingly close to matching the performance of SPY. In 2020, Arnott believes investors will rotate into mid-cap stocks, which could go on a long streak.
At an management expense ratio (MER) of 0.24%, IWS is a cheap way to play a possible mid-cap renaissance. In the meantime, enjoy the ETFs 2.1% 30-day SEC yield.
WisdomTree International MidCap Dividend Fund (DIM)
Management Expense Ratio: 0.58%
Total Net Assets: $259.4 million
Some exposure to international equities is always a good idea because it prevents you from falling for home-country bias. However, it also allows you to invest in some of the international businesses that are doing well in the U.S.
That balance between U.S. equities and foreign equities is a delicate one. Given the U.S. accounts for almost 50% of the world’s market capitalization, American stocks will always be a significant chunk of most people’s portfolios.
However, having an ETF like the WisdomTree International MidCap Dividend Fund (NYSEARCA:DIM), which invests in mid-caps outside America, provides both diversification and a healthy 2.9% 30-day SEC yield.
The DIM’s top five country allocations are Japan (25.4%), United Kingdom (16%), France (8.3%), Australia (7.9%) and Germany (6%).
The companies held in the ETF are weighted by the annual cash dividends paid. Its top 10 holdings account for 6.6% of the portfolio’s $259.3 million in total net assets.
Invesco S&P MidCap 400 Pure Value ETF (RFV)
Management Expense Ratio: 0.35%
Total Net Assets: $141.2 million
Whenever I’m putting together a list of ETFs, I like to include funds from as many providers as possible. For this reason, despite already recommending a value ETF, I’ve included the Invesco S&P MidCap 400 Pure Value ETF (NYSEARCA:RFV) as a second possibility.
This particular Invesco ETF has been operating since March 2006, and tracks the performance of the S&P MidCap 400 Pure Value Index. It currently has a 30-day SEC yield of 1.8% from 90 mid-cap value stocks.
RFV’s average market cap is $3.4 billion, putting it squarely in mid-cap territory. Over the past 10 years, it’s had an annual total return of 10.9% through Jan. 13, ranking its performance in the top 37% of 237 ETFs in its category.
Financials (23%), consumer discretionary (20.4%) and industrials (16%) are the ETFs top three sectors for investments. The ETFs top stock by weight is Resideo Technologies (NYSE:REZI) at 2.8%.
Vanguard Mid-Cap Index ETF (VO)
Management Expense Ratio: 0.04%
Total Net Assets: $29.5 billion
If you don’t believe in high fees, the Vanguard Mid-Cap Index ETF (NYSEARCA:VO) is just the fund for you. Charging just four cents for every $100 invested, you can’t get much better than this Vanguard ETF.
VO tracks the CRSP US Mid Cap Index, a diversified portfolio of U.S. mid-sized companies. It has 347 stocks whose median market cap is $16.4 billion. The fund turns its entire portfolio once every six years, a turnover rate of 15.7%.
VO is considered a blend of growth and value stocks. The average stock has a price-earnings (P/E) ratio of 22.1x, lower than the S&P 500 P/E of 24.6x.
Financials, industrials, and technology stocks are the three top sectors with weightings of 21.6%, 17.3% and 15.9%, respectively. Its top 10 holdings account for 6.8% of the portfolio.
If you’re a fan of Advanced Micro Devices (NASDAQ:AMD), it is VO’s top holding with more than 27 million shares held in the semiconductor stock.
SPDR S&P MidCap 400 ETF (MDY)
Management Expense Ratio: 0.24%
Total Net Assets: $19.0 billion
As ETFs go, the SPDR S&P MidCap 400 ETF (NYSEARCA:MDY) is a big one in terms of total net assets. In fact, it is one of the 100 largest ETFs in the U.S. according to ETFdb.com.
MDY tracks the performance of the S&P MidCap 400 Index. The index invests in stocks with market caps between $1 billion and $8 billion. Rebalanced quarterly, any stock in the index that falls below $300 million on a float-adjusted basis is removed from the index.
The S&P MidCap 400 index, along with the S&P 500 and S&P SmallCap 600, make up the S&P 1500, an index that accounts for 90% of the U.S. market cap.
As the name suggests, MDY holds 400 mid-cap stocks with a weighted average market cap of $6 billion, a P/E of 18.7x, and a 3-5 year growth rate of 10.2%.
Financials (16.5%), technology (16%) and industrials (15.7%) are the ETF’s three largest sectors by weighting.
John Hancock Multi-Factor Mid Cap ETF (JHMM)
Management Expense Ratio: 0.44%
Total Net Assets: $1.6 billion
The John Hancock Multi-Factor Mid Cap ETF (NYSEARCA:JHMM) is designed to be used as a core equity holding for an investor’s portfolio. It tracks the performance of the John Hancock Dimensional Mid Cap Index. Furthermore, the index provider is Dimensional Fund Advisors, best known in the investment industry for applying academic research to its investment management.
The ETF has grown its total net assets to $1.6 billion in less than five years, a reasonably quick run to the billion-dollar mark. Unlike most passive ETFs that rebalance quarterly, JHMM is reconstituted and rebalanced semi-annually.
The index is a subset of the U.S. universe of stocks, selecting those companies whose market caps are between the 200th and the 951st largest from this universe. Also, the index utilizes a multi-factor, rules-based process, with smaller companies having higher profitability and lower relative prices getting higher weightings and vice versa.
The ETF currently has 685 holdings, a P/E of 17.6x, and a 1.02% dividend yield. Over the past three years, it’s got an annualized total return of around 12% through Jan. 13.
Vanguard Mid-Cap Growth ETF (VOT)
Management Expense Ratio: 0.07%
Total Net Assets: $7.1 billion
While value stocks seem to be making a comeback, growth funds such as the Vanguard Mid-Cap Growth ETF (NYSEARCA:VOT) are popular because growth stocks have seen a bigger performance in recent years.
Over the past five years, the VOT has generated an annualized total return of 10.7%, nearly 2.5% higher than the Vanguard Mid-Cap Value ETF (NYSEARCA:VOE).
Not surprisingly, the VOT’s 30-day SEC yield is just 0.8%. By comparison, the VOE has a 30-day SEC yield of 2.2%, almost three times higher. Growth stocks, by their very nature, typically don’t pay dividends. And if they do, they’re not that large.
The VOT is all about capital appreciation.
Its top 10 holdings include high-flyers Advanced Micro Devices, TransDigm Group (NYSE:TDG) and Lululemon (NASDAQ:LULU).
Its top three sectors by weighting are industrials (23.5%), technology (23%) and financials (18.2%).
iShares Core S&P Mid-Cap ETF (IJH)
Management Expense Ratio: 0.06%
Total Net Assets: $53.3 billion
In recent years, funds like the iShares Core S&P Mid-Cap ETF (NYSEARCA:IJH), have gathered significant assets because institutional investors have been using ETFs to efficiently cover wide swaths of the markets.
Overall, IJH is the 13th largest U.S.-listed ETF, and the biggest fund available that invests exclusively in mid-cap stocks. The iShares name also certainly helps it attract investors.
The ETF has been around since May 2000, making it 20-years-old in 2020. Like many of the mid-cap ETF’s on this list, it tracks the performance of the S&P MidCap 400. Also, like many of the ETFs, the top three sectors are financials, technology and industrials. Its 30-day SEC yield is a reasonable 1.6%.
If you’re looking for a fund with lots of liquidity — it trades almost one million shares daily — you can’t go wrong with IJH.
Schwab U.S. Mid-Cap ETF (SCHM)
Management Expense Ratio: 0.04%
Total Net Assets: $6.9 billion
Like Vanguard, Schwab’s ETFs are inexpensive, which makes them extremely popular.
The Schwab U.S. Mid-Cap ETF (NYSEARCA:SCHM) tracks the performance of the Dow Jones U.S. Mid-Cap Total Stock Market Index. It has a total of 513 holdings, and over the past five years, it’s generated an annualized total return of 9.7%.
The benchmark index is a subset of the Dow Jones U.S. Total Stock Market index, which includes 95% of U.S.-listed stocks. Of the approximately 3,650 stocks in the index, the 501st largest by market cap through the 1,000th are included in the mid-cap index.
Because the mid-cap index is a subset of the total market, the names of stocks in its top 10 holdings are slightly different than IJH and some of the other ETFs tracking the S&P SmallCap 400.
SCHM’s top three include Burlington Stores (NYSE:BURL), Gartner (NYSE:IT) and Wabtec (NYSE:WAB).
First Trust Mid Cap Core AlphaDEX Fund (FNX)
Management Expense Ratio: 0.61%
Total Net Assets: $889.2 million
My final recommendation is the First Trust Mid Cap Core AlphaDEX Fund (NYSEARCA:FNX), the most expensive of the mid-cap ETFs to buy at 0.61%.
What it loses in terms of affordability, it makes up for in terms of quality. Over the past five years, it’s generated an annualized total return of 8%, putting it at the top of the class in terms of performance.
FNX utilizes the AlphaDEX stock selection methodology to pick stocks from the NASDAQ US 600 Mid Cap Index. The Alphadex methodology ranks eligible stocks on both growth and value factors. The top 450 stocks are included in the index, and they are then ranked by quintiles. Once done, they are all equal-weighted.
In one of the rare instances amongst the mid-cap ETFs, consumer discretionary stocks make it into the top three sectors. In the case of FNX, the top three sectors by weighting are financials (21%), industrials (16.8%) and consumer discretionary (15.8%). Technology’s not too far behind in fourth place with a 13.2% weighting.
What it delivers in capital appreciation, it gives up in income generation. Its 30-day SEC yield is just 1.4%. If you’re an income junkie, FNX might not be for you.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
