Midcap core exchange-traded funds (ETFs) provide broad coverage of the U.S. midcap equities market. These funds are designed to serve as long-term core holdings in diversified ETF portfolios. The midcap category is generally understood to include companies with market capitalizations between $2 and $10 billion.
However, none of the indexes that underlie the top ETFs in this space follow this simplified definition of the midcap range. As a result, the midcap core ETFs described below offer investors a good range of options for exposure to this area of the equities market.
Vanguard Mid-Cap ETF
The Vanguard Mid-Cap ETF (NYSEARCA: VO) delivers broad coverage of U.S. midcap equities by tracking the CRSP U.S. Mid Cap Index, a benchmark created and managed by the Center for Research in Security Prices at the University of Chicago Booth School of Business. This index ranks U.S. companies by market capitalization and then selects those ranked between the 70th and 85th percentiles. Some stocks near the edges of the selection band may be included in the index on a partial-weight basis. VO seeks to replicate the investment results of the index by investing in the same stocks in approximately the same proportions whenever possible.
As of August 2018, VO has net assets of more than $103 billion invested in 357 stocks. The company with the largest weighting is ServiceNow Inc. (NOW), with 0.8% of the fund invested in the stock. ServiceNow has a $35 billion market cap. The average market cap of VO stocks is $16.9 billion.
The fund's median holding has a market cap of $15.7 billion. In terms of sector exposure, financial stocks lead the way with an allocation of 21.5%, followed by industrial stocks at 18.3%, technology stocks at 16.2%, consumer services stocks at 10% and consumer goods at 9.6%. VO has a very low expense ratio of 0.05%.
iShares Core S&P Mid-Cap ETF
The iShares Core S&P Mid-Cap ETF (NYSEARCA: IJH) tracks the investment results of the S&P MidCap 400 Index. Companies are chosen for the index based on a variety of factors including adequate liquidity, general financial viability and industry classification. The index includes companies in a mix of industries to ensure sector representation is generally in line with the full population of eligible midcap companies. Since the index is not reconstituted on a regular basis, companies that rise or fall out of the initial selection band may remain in the index for some time.
IJH employs a representative sampling strategy to create a portfolio of stocks that closely approximates the characteristics of the underlying index. As of Oct. 2018, IJH has approximately $49.9 billion in net assets across 401 stocks. The fund's top holding, Fortinet (FTNT), has a market capitalization of $15.5 billion. The sector breakdown includes a 16.53% allocation to information technology stocks, 16.14% to financial stocks, 14.55% to industrial stocks and 11.42% to consumer discretionary stocks. IJH has an expense ratio of 0.07%.
Schwab US Mid-Cap ETF
The Schwab US Mid-Cap ETF (NYSEARCA: SCHM) seeks to match the investment performance of the Dow Jones U.S. Mid-Cap Total Stock Market Index. This index is constructed by first ranking the companies in the Dow Jones U.S. Total Stock Market Index by market capitalization, and then selecting the group of companies that are ranked from 501 to 1000. Once in the index, companies are not removed unless they fall below a rank of 1100 or rise above a rank of 401. SCHM utilizes a sampling strategy to approximate the investment profile of the underlying index.
As of Oct. 2018, SCHM has net assets of over $5.4 billion spread across 513 stocks. The top holding in the fund, Xylem (XYL), has a market capitalization of approximately $14.5 billion. Over 93% of the fund is invested in stocks with a market cap of between $3 billion and $15 billion.
In terms of sector allocation, 19.28% of the fund is invested in information technology stocks, 15.11% in industrial stocks, 14.7% in financial stocks, 14.55% in consumer discretionary stocks and 10.67% in real estate stocks. SCHM has a low expense ratio of 0.05%.
iShares Russell Mid-Cap ETF
The iShares Russell Mid-Cap ETF (NYSEARCA: IWR) offers investors broad exposure that tilts more toward larger companies than other options on this list. IWR seeks to track the Russell Midcap Index. This index comprises the smallest 800 or so companies in the Russell 1000 Index, which itself includes the largest 1,000 companies in the United States. IWR employs a sampling strategy to track the underlying index.
As of Oct. 2018, IWR has more than $18.3 billion in net assets invested in 790 holdings. The fund's largest holding, Ross Stores (ROST), has a market capitalization of approximately $35.7 billion. The sector breakdown includes an 18.4% allocation to information technology stocks, 14.25% to industrial stocks and 13.29% to financials. IWR has an expense ratio of 0.20%.
iShares Morningstar Mid-Cap ETF
The iShares Morningstar Mid-Cap ETF (NYSEARCA: JKG) attempts to track the investment results of the Morningstar Mid Core Index. To construct this index, Morningstar employs a proprietary method to select mid-cap companies characterized by average growth and value qualities. Under this methodology, midcap companies are those that rank between the 90th and 70th percentiles in terms of market capitalization in the U.S. Eligibility requires a listing on the New York Stock Exchange, NASDAQ or the NYSE Amex Equities market. Stocks in the index are weighted based on the numbers of shares publicly available for trading. JKG uses a representative sampling strategy to approximate the index.
As of Oct. 2018, JKG has net assets of nearly $745 million in 195 stocks. Top holdings in the fund include Centene (CNC) at 1.55%, Ingersoll Rand (IR) at 1.33% and Rockwell Collins (COL) at 1.21%. The sector breakdown includes an allocation to industrial stocks at 19.1%, information technology stocks at 14.23% and consumer discretionary stocks at 14.13%. JKG has an expense ratio of 0.25%.