The iShares S&P 500 Value ETF (NYSEARCA:IVE) has a total return year-to-date of -1.60% through March 17. The iShares S&P 500 Growth ETF (NYSEARCA:IVW) is down almost 8x more. Now is not the time to be looking to buy mid-cap (capitalization) growth funds.
That said, mid-cap growth stocks have historically done quite well, relative to the overall U.S. market. For example, over the past 10 years through March 17, the Russell Midcap Growth Index had an annualized total return of 13.59%, 77 basis points higher than the Russell Midcap Index.
I’ve always liked mid-cap stocks because they tend to be larger companies that are still growing but also making money and possessing sound balance sheets.
A Wealth of Common Sense blogger Ben Carlson’s periodic table for 2021 shows that over the past 10 years, mid-caps were the third-best asset class, just 40 basis points behind small-cap stocks, but with far less risk. Not once did mid-caps finish first over those 10 years. That’s consistency.
- Vanguard Mid-Cap Growth ETF (NYSEARCA:VOT)
- SPDR S&P 400 Mid Cap ETF (NYSEARCA:MDYG)
- iShares Russell Mid-Cap Growth (NYSEARCA:IWP)
- Janus Henderson Small/Mid Cap Growth Alpha ETF (NYSEARCA:JSMD)
- Nuveen ESG Mid-Cap Growth ETF (MUTF:NUMG)
- Invesco Discovery Mid Cap Growth Fund (MUTF:OEGAX)
- MFS Mid Cap Growth Fund (MUTF:OTCAX)
- Fidelity Growth Strategies Fund (MUTF:FDEGX)
- T. Rowe Price New Horizons (MUTF:PRNHX)
- Baird Small/Mid Cap Growth Investor (MUTF:BSGSX)
For today’s gallery, I’m going to provide readers with a combination of mutual funds and exchange traded funds (ETFs) that lean to the growth side of the aisle. Over the long haul, any of these should get you where you want to go.
Mid-Cap Growth Funds to Buy: Vanguard Mid-Cap Growth ETF (VOT)
Representing Vanguard in this exercise is VOT, the company’s mid-cap growth ETF. VOT tracks the performance of the CRSP US Mid Cap Growth Index, a collection of mid-cap growth stocks.
The Center for Research in Security Prices (CRSP) assigns all the investable mid-cap stocks to either growth or value. It uses six criteria to find and rate growth stocks including future long-term growth in earnings per share, future short-term growth in EPS, the three-year historical growth in sales, and several others.
The three biggest reasons VOT is a mid-cap growth fund to consider are as follows:
- It has an expense ratio of just 0.07%. That means you pay $7 for every $10,000 invested. That compares to an average of 1.06% for similar funds according to Morningstar.
- The ETF invests in 180 stocks, a relatively low number compared to many of the passive ETFs available today. The median market cap of these 180 mid-cap stocks is $27.1 billion, which means you also get a decent amount of large caps in the portfolio’s $10.9 billion in total net assets.
- No less than three sectors in the portfolio have a weighting of 10% or more. The top three sectors are technology (28.90%), industrials (17.40%), and health care (16.80%)
SPDR S&P 400 Mid Cap Growth ETF (MDYG)
As the name suggests, MDYG tracks the performance of the S&P 400 Mid Cap Growth Index. The index consists of the stocks in the S&P 400 Mid Cap Index that have the strongest growth characteristics, which include sales growth, price-to-earnings, and momentum. It is rebalanced once a year in December.
MDYG has 231 holdings invested in its $1.63 billion in total net assets. The weighted average market cap is $8.26 billion. The typical stock held has a three to five year earnings-per-share (EPS) growth rate of 15.4%, a price-to-book (P/B) ratio of 3.65, and a price-to-earnings ratio (P/E) of 16.89.
Since the ETF’s inception in November 2005, it has had an annualized total return of 10.48% through Feb. 28.
One of my favorite stocks — Williams-Sonoma (NYSE:WSM) — is in the top 10. The ETFs top 10 holdings account for 12% of the portfolio. WSM has a current weighting of 1.06%.
Mid-Cap Growth Funds to Buy: iShares Russell Mid-Cap Growth (IWP)
The one thing you know when you invest in an iShares ETF is that you’re investing with a lot of other people. IWP currently has total net assets of $13.5 billion. These assets are invested in 389 holdings.
The ETF tracks the performance of the Russell MidCap Growth Index, a collection of growth stocks that represents approximately one-third of the Russell MidCap Index. This index is approximately 800 of the Russell 1000 Index’s smallest constituents.
Companies that make the Russell’s mid-cap growth index tend to have higher P/B, higher two-year forecasted EPS growth, and higher five-year historical sales growth.
IWP is very diversified, with the top 10 accounting for just 12% of the portfolio. The three top sectors by weight are technology (33.7%), health care (17.07%), and industrials (15.75%).
Looking at some of the top 10 holdings, I’d say the 0.23% expense ratio is well worth the extra cost. There are some excellent names on that list.
Janus Henderson Small/Mid Cap Growth Alpha ETF (JSMD)
In addition to spreading out the mid-cap growth funds amongst ETFs and mutual funds, I also included a diversified group of providers.
Janus Henderson’s Small/Mid Cap Growth made the cut because its mixture of small and mid-cap stocks stands out amongst the overall growth umbrella.
JSMD tracks the performance of the Janus Henderson Small/Mid Cap Growth Alpha Index. The index is created by taking 2,500 small- and medium-sized companies from the Solactive Small/Mid Cap Index and applying its Smart Growth proprietary methodology to select the stocks for its index.
It uses revenue growth rates, operating profits and EPS, along with return on invested capital, to cull the list down to a manageable amount.
The ETF currently has 265 names invested amongst its $164.7 million in total assets. The weighted average market cap is $8.8 billion. The portfolio’s turnover rate is a high 94%.
Since its inception in February 2016, it has annualized total return of 16.47% through Feb. 28.
Mid-Cap Growth Funds to Buy: Nuveen ESG Mid-Cap Growth ETF (NUMG)
NUMG is the last of my ETF suggestions. The Nuveen fund adds an ESG component to the mid-cap growth angle. It tracks the performance of the TIAA ESG USA Mid-Cap Growth Index.
How is it different from your typical passive mid-cap growth index? It takes the MSCI USA Mid-Cap Growth Index and applies environmental, social, and governance (ESG) criteria. Companies that meet these criteria are then ranked within their sectors and selected from these rankings.
Launched in December 2016, NUMG has an annualized total return of 15.74% through Feb. 28. The ETF charges 0.30%, which isn’t half bad given the extra ESG layer. Investors who prefer more focused portfolios will like the fact it has just 59 positions invested in its $365.2 million in total net assets.
The top three sectors by weight are technology (38.35%), health care (20.09%), and consumer discretionary (11.50%).
Invesco Discovery Mid Cap Growth Fund (OEGAX)
Invesco’s fund was recently profiled in Barron’s. Co-portfolio manager Ron Zibelli created the mid-cap growth strategy in 2010 while working at Oppenheimer Funds. It was acquired by Invesco in 2019.
The co-managers have a background in small-cap growth investing, which means many of the names in OEGAX are companies that they’ve already become familiar with through their small-cap dealings.
OEGAX has been around since November 2000. Morningstar gives it four stars for its performance over the past three, five, and 10-year periods. It has an expense ratio of 1.03%, which is good for an actively managed ETF that’s delivered over the long haul.
One of its top 10 holdings is SVB Financial (NASDAQ:SIVB), easily my favorite U.S. bank. The fund currently has 79 holdings with the top 10 accounting for 21% of the portfolio.
Like many actively-managed funds, it has a high turnover rate of 92%, which means it turns the entire portfolio once every 13 months or so.
Mid-Cap Growth Funds to Buy: MFS Mid Cap Growth Fund (OTCAX)
If you like putting your money into large funds, OTCAX is definitely that. It currently has $13.8 billion in total net assets invested in 98 mid-cap growth stocks. The weighted average market cap is $24.5 billion.
The top 10 holdings account for 23.98% of the portfolio. My favorite name of the top 10 would be MSCI (NYSE:MSCI). I recommended MSCI in December. It’s more than just an index provider.
The three top sectors by weight are technology (24.25%), health care (19.88%), and industrials (19.01%). It has a portfolio turnover rate of 19.5%. That’s very low for active management.
Two of the three portfolio managers who run OTCAX have more than 10 years with the fund. That’s a good thing. Over the past 10 years through Feb. 28, it has had an annualized total return of 13.54%, including the sales charge.
Fidelity Growth Strategies Fund (FDEGX)
This actively managed fund invests in medium-sized companies that are experiencing or have the potential for accelerated sales or earnings growth. Having said that, the portfolio manager may invest in small and large-cap stocks.
Jean Park is the current portfolio manager and has been since August 2013. She also manages several other Fidelity funds.
FDEGX had 129 holdings as of the end of December. The top 10 accounts for 25.10% of the fund’s $3.05 billion in total assets. Like many of the mid-cap growth funds, the top 10 are fairly common amongst the different funds. I don’t know if that’s a good thing. It is what is.
The fund charges 0.63%. That’s low for an actively managed fund. Over the past five years through Feb. 28, it has had an average annual return of 13.66%. YTD, unfortunately, like a lot of investments, it’s down 16.18%.
Mid-Cap Growth Funds to Buy: T. Rowe Price New Horizons (PRNHX)
This particular fund is older than I am –and I’m 57. It got its start in June 1960. That’s a 62-year track record. It’s been managed by Joshua Spencer since March 2019. Spencer’s been with the firm since 2004.
Investing in a diversified group of small, emerging growth companies, I’m particularly attracted to this fund for two reasons: First, its top 10 holdings account for 35.47% of the fund’s $31.8 billion in total net assets. Secondly, the top 10 aren’t the usual names. Perhaps that’s why Morningstar gives it five stars for its risk-adjusted returns.
In the three years ended Feb. 28, the fund had an average annual return of 18.25%. That’s basically Spencer’s entire tenure managing the fund, so good on him.
The top three sectors by weight are technology (37.71%), health care (27.58%), and industrials & business services (20.44%).
PRHNX charges 0.75% annually. There is no load. You can set up a monthly contribution for as little as $100.
Baird Small/Mid Cap Growth Investor (BSGSX)
Brought to you by the good folks at Baird Asset Management, BSGSX invests in 60-70 stocks that can drive above-average earnings and sales growth. The holdings range in size from $500 million to $12 billion. It looks to deliver market-beating returns from the Russell 2500 Growth Index over the next three to five years.
While it doesn’t have a huge amount of total net assets at $158.2 million, it’s only been around since October 2018. It doesn’t even have a five-year track record.
Interestingly, despite having only 60 positions, its top 10 holdings account for just 25% of its overall portfolio. The portfolio manager is Jonathan Good. He’s been at Baird Asset Management since 2006 and has been running the fund since its inception.
Morningstar gives it a five-star rating. The fund’s number one holding at 3.43% is Pool Corp. (NYSE:POOL). I liked this stock in 2012, and I still like it today.
It’s got an impressive three-year annualized total return of 18.43%.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.