Midcap exchange-traded funds (ETFs) are composed primarily of equity securities of companies whose market capitalizations fall somewhere from $2 billion to $10 billion. As the name implies, midcap companies have market caps greater than those of small caps but less than those of large caps.
The unique appeal that midcaps offer investors is that they are expected to exhibit growth and increase profits, market share, and productivity. They are considered less risky investments than small-caps but more risky than large-caps. An ETF focused on midcap companies provides investors a way to gain diversified exposure to companies still in the middle of their growth curve.
- Midcap equities have underperformed the broad U.S. equity market over the past year.
- The best midcap exchange-traded funds (ETFs) for the first quarter (Q1) of 2022 are XHB, SMIN, and XMVM.
- The holdings of the first and third of these ETFs is Builders First Source Inc., while the top holding of the second ETF is Zee Entertainment Enterprises Ltd.
There are 46 midcap ETFs that trade in the United States, excluding inverse and leveraged funds as well as those with less than $50 million in assets under management (AUM). This list includes ETFs that invest in midcap equities but may not be exclusively or even primarily focused on midcaps.
Midcap stocks, as measured by the S&P MidCap 400 Index, have underperformed the broad U.S. equity market over the 12 months, with a total return of 25.5% compared with the S&P 500’s total return of 28.9%, as of Dec. 10, 2021.
We examine the three best midcap ETFs below. All numbers are as of Dec. 9, 2021.
- Performance Over One-Year: 51.1%
- Expense Ratio: 0.35%
- Annual Dividend Yield: 0.52%
- Three-Month Average Daily Volume: 2,117,940
- Assets Under Management: $2.3 billion
- Inception Date: Jan. 31, 2006
- Issuer: State Street
XHB gives investors exposure to the U.S. homebuilding industry by tracking the S&P Homebuilders Select Industry Index, which represents the homebuilding subindustry portion of the S&P Total Market Index. The ETF uses an equal-weighted approach in which companies with larger and smaller market caps are given similar exposure.
XHB also follows a blended strategy, investing in a mix of growth and value stocks. The fund’s largest allocation is in companies that provide building products, followed by homebuilders and home improvement retailers.
XHB’s top three holdings are Builders FirstSource Inc. (BLDR), a manufacturer and supplier of building materials, manufactured components, and construction services; Lowe’s Companies Inc. (LOW), a retailer of home improvement products; and Home Depot Inc. (HD), a home improvement retailer.
- Performance Over One-Year: 48.1%
- Expense Ratio: 0.81%
- Annual Dividend Yield: 0.08%
- Three-Month Average Daily Volume: 70,920
- Assets Under Management: $408.3 million
- Inception Date: Feb. 8, 2012
- Issuer: BlackRock Financial Management
SMIN seeks to track the performance of the MSCI India Small Cap Index, which is composed of small-cap Indian equities. The ETF provides targeted exposure to small-cap Indian stocks. However, it also invests in Indian companies that generally would be considered midcap based on the size of their market caps.
SMIN follows a blended strategy, investing in a mix of value and growth stocks. The fund’s largest exposure is in the materials sector, followed by industrials and financials.
The fund’s top three holdings are Zee Entertainment Enterprises Ltd. (ZEEL.NS), a media and entertainment company; Voltas Ltd. (VOLTAS.BO), an air conditioning and engineering company; and Crompton Greaves Consumer Electricals Ltd. (CROMPTON.BO), a manufacturer of consumer products.
- Performance Over One-Year: 33.6%
- Expense Ratio: 0.39%
- Annual Dividend Yield: 0.92%
- Three-Month Average Daily Volume: 27,335
- Assets Under Management: $200.8 million
- Inception Date: March 3, 2005
- Issuer: Invesco
XMVM invests at least 90% of its total assets in securities that make up the S&P MidCap 400 High Momentum Value Index, which is composed of 80 securities within the S&P MidCap 400 Index that have the highest scores for both value and momentum.
XMVM uses a number of financial metrics, including book value, earnings, and sales, to determine the most undervalued companies in the S&P MidCap 400. The fund’s sector allocation is in financials, followed by consumer discretionary and industrials.
XMVM’s top three holdings are Builders FirstSource, described above; Jefferies Financial Group Inc. (JEF), a provider of financial services; and Taylor Morrison Home Corp. (TMHC), a homebuilder and developer of lifestyle communities.
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