Mid-cap stocks and exchange-traded funds (ETFs) often go overlooked relative to their large- and small-cap counterparts, but that does not diminish the potency of mid-caps over the long haul. For investors new to mid-caps, a good starting point is establishing what exactly constitutes "mid-cap." While definitions vary, it is widely accepted that the $2 billion area is the end of the line for small-caps and that a $10 billion market capitalization is the early stages of large-cap territory, so it is fair to deem mid-caps as those stocks with market caps of $2 billion to $10 billion.

Historical data suggest that investors in mid-cap ETFs should ensure that they are actually getting a mid-cap fund, not a large-cap fund in disguise. The WisdomTree MidCap Dividend Fund (DON) features the benefits of dividends, and the market value of its components is solidly in mid-cap territory, not drifting into the large-cap area as some rival ETFs do. (See also: A Dynamic ETF for Overlooked Stocks.)

At the end of the first quarter, the weighted average market value of DON's holdings was $7.1 billion, less than half the weighted average market value found on the Vanguard Mid-Cap Growth ETF (VOT). The weighted average market value of DON's holdings was also about $1.8 billion above that on the widely followed S&P MidCap 400 Index, putting DON in something of a mid-cap sweet spot.

DON's 400 holdings are weighted by dividends, whereas rival mid-cap strategies are typically weighted by market value, a methodology that often delivers to investors a large-cap fund in disguise as prices appreciate. Over the past six years, DON's underlying index, the WisdomTree MidCap Dividend Index, has trounced the rival CRSP index by more than 35 percent. (See also: Introduction to Fundamentally Weighted Index Investing.)

"What this 35 percent really tells us is not which of the mid-cap indexes shown will outperform over the next six years – as that is impossible to know today – but rather that the selection of the mid-cap index is enormously important," said WisdomTree in a recent note. "All of these indexes have 'mid-cap' in their name, but as is clearly shown, performance was quite different."

DON allocates 21.3 percent of its weight to consumer discretionary names, whereas the competing CRSP index devotes less than 24 percent of its weight to both consumer sectors. DON also allocates a combined 29.1 percent of its lineup to real estate and industrial names, helping boost its dividend yield to 3 percent. That is above average for mid-cap ETFs. (See also: How Dividend-Paying ETFs Work.)

The $2.8 billion DON “has been a 'category creator,' fulfilling an income-generating need in a low interest rate environment within mid-cap stocks,” according to WisdomTree. “Prior to this strategy’s existence, dividends were thought to be a large-cap equity phenomenon.”

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