Midcap 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 a market capitalization between $2 and $10 billion.
However, none of the indexes underlying 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. All the midcap ETFs in this article offer excellent value for 2021.
- Midcap exchange-traded funds (ETFs) provide broad coverage of the U.S. midcap equities market.
- The lowest expense ratio of 0.04% was offered by both the Vanguard Mid-Cap ETF (VO) and the Schwab U.S. Mid-Cap ETF (SCHM), so that’s a tie when considering VO vs. SCHM.
- The largest ETFs on the list were the Vanguard Mid-Cap ETF (VO) with $113 billion in net assets and the iShares Core S&P Mid-Cap ETF (IJH) with $46.9 billion.
1. Vanguard Mid-Cap ETF (VO)
The Vanguard Mid-Cap ETF (VO) delivers broad coverage of U.S. midcap equities by tracking the CRSP U.S. Mid Cap Index. This benchmark was created by the Center for Research in Security Prices (CRSP) at the University of Chicago Booth School of Business. The index ranks U.S. companies by market capitalization and then selects those ranked between the 70th and 85th percentiles. Some stocks near the selection band's edges may be included in the index on a partial-weight basis. VO seeks to replicate the index's investment results by investing in the same stocks in approximately the same proportions whenever possible.
As of November 2020, the VO ETF had net assets of more than $113 billion invested in 347 stocks. The company with the largest weighting was DexCom, Inc. (DXCM), with 0.81% of the fund invested in the stock. DexCom Inc. had a $35 billion market cap.
The fund's median holding had a market cap of $19.7 billion. In terms of sector exposure, technology stocks led the way with an allocation of 19.0%, followed by consumer discretionary stocks at 15.6%, industrials at 13.3%, healthcare stocks at 12.0%, and financials at 11.1%. The VO ETF had a tiny expense ratio of 0.04%.
2. iShares Core S&P Mid-Cap ETF (IJH)
The iShares Core S&P Mid-Cap ETF (IJH) tracks the investment results of the S&P MidCap 400 Index. Companies are chosen for the index based on several 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 regularly, 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 underlying index's characteristics. As of November 2020, IJH had approximately $46.9 billion in net assets across 400 stocks. The fund's top holding, Enphase Energy, Inc. (ENPH), had a market capitalization of $15.5 billion. The sector breakdown includes a 17.94% allocation to industrials, 16.35% to information technology stocks, 14.92% to consumer discretionary stocks, and 14.07% to financials. IJH had an expense ratio of 0.05%.
3. Schwab U.S. Mid-Cap ETF (SCHM)
The Schwab U.S. Mid-Cap ETF (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. Then they select 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 November 2020, SCHM had net assets of over $6.9 billion spread across 506 stocks. The top holding in the fund, Insulet Corporation (PODD), had a market capitalization of approximately $16.9 billion. Over 95% of the fund was invested in stocks with a market cap of between $3 billion and $15 billion.
In terms of sector allocation, 18.46% of the fund was invested in information technology stocks, 15.22% in industrial stocks, 14.35% in financial stocks, 13.45% in consumer discretionary stocks, and 12.12% in financials. SCHM had a low expense ratio of 0.04%.
4. iShares Russell Mid-Cap ETF (IWR)
The iShares Russell Mid-Cap ETF (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 November 2020, IWR had more than $22.0 billion in net assets invested in 818 holdings. The fund's largest holding, DocuSign Inc. (DOCU), had a market capitalization of approximately $42.9 billion. The sector breakdown includes a 19.73% allocation to information technology stocks, 15.47% to industrials, and 13.41% to healthcare. IWR had an expense ratio of 0.19%.
5. iShares Morningstar Mid-Cap ETF (JKG)
The iShares Morningstar Mid-Cap ETF (JKG) attempts to track the Morningstar Mid Core Index's investment results. 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 United States. 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 number of their shares publicly available for trading. JKG uses a representative sampling strategy to approximate the index.
As of November 2020, JKG had net assets of nearly $691 million in 167 stocks. The top holding in the fund was TE Connectivity Ltd. (TEL), with a market cap of about $34.8 billion. The sector breakdown includes an allocation to industrial stocks at 18.35%, real estate stocks at 14.29%, and information technology stocks at 12.84%. JKG had an expense ratio of 0.25%.