What Is the S&P MidCap 400 Index?

The term S&P MidCap 400 refers to a benchmark index published by Standard & Poor's (S&P). The index is comprised of 400 companies that broadly represent companies with midrange market capitalization between $3.3 billion and $11.8 billion. The S&P MidCap 400 was launched in 1991. It is one of several leading indexes issued by S&P that investors use as a gauge for market performance and directional trends in U.S. stocks.

Key Takeaways

  • This index is a market-capitalization-weighted index of the 400 U.S. publicly traded companies with midrange capitalization.
  • It is a float-weighted index, meaning company market capitalizations are adjusted by the number of shares available for public trading.
  • The index is the most widely followed mid-cap index so there are several funds designed to track the performance of this index.
  • The midcap index reflects the same sector groupings as the S&P 500 Index.
  • Investors can invest in securities, such as exchange-traded funds and mutual funds, that track the index.

Understanding the S&P MidCap 400 Index

The S&P MidCap 400 Index tracks the performance of companies considered to be in the mid-range of market capitalization of $3.3 billion and $11.8 billion. This distinction sets them apart from large-cap companies. In order to be eligible, companies must:

  • Be U.S.-based
  • Have a minimum investable weight factor of 0.10
  • Be listed on an exchange

All equities that are exchange-traded qualify to be listed on the index, including real estate investment trusts (REITs). Closed-end funds cannot be included, such as American depositary receipts (ADRs) and exchange-traded funds (ETFs).

The index is market-cap weighted, which means that the larger the market valuation, the more influence that individual stock has on the index. The formula for weighting each company in the index is calculated by taking the market cap for the individual company and dividing it by the total of all 400 company market caps in the index. This gives the larger capitalized companies more influence on the index's movement.

The S&P 400 MidCap Index is calculated and rebalanced every quarter in March, June, September, and December. Calculation occurs in real-time in the U.S. dollar (USD), the Canadian dollar (CAD), the euro, the British pound sterling (GBP), and the Japanese yen (JPY). As of April 30, 2021, the top five sectors listed on the index were industrials (18.5%), financials (15.9%), consumer discretionary (14.8%), information technology (13.4%), and health care (11.7%). The top five holdings as of that date were:

  • Bio-Techne (health care)
  • Charles River (health care)
  • Fair Isaac & Co (information technology)
  • Cognex (information technology)
  • Molina Healthcare (health care)

Investors generally expect that these companies should have more growth opportunities in size and valuation, thus representing the potential for higher rewards than large-cap companies.

S&P MidCap 400 Index vs. S&P 500

The S&P 500 is another Standard & Poor's index that was launched in 1997. It is a market-capitalization-weighted index comprised of 500 of the largest companies in the United States. As such, it is considered the best gauge of the U.S. large-cap market. It is comprised of companies with a market cap of at least $11.8 billion. Like the S&P MidCap 400 Index, it is rebalanced every quarter.

As of April 30, 2021, there were 505 constituents on the index. The top five sectors as of this date were information technology (26.7%), health care (12.8%), consumer discretionary (12.7%), financials (11.5%), and communication services (11.2%). The top five companies listed on the index as of that date were:

  • Apple (information technology)
  • Microsoft (information technology)
  • Amazon (consumer discretionary)
  • Facebook (communications services)
  • Alphabet A (communications services)

As of April 30, 2021, the S&P 400 MidCap Index had a year-to-date (YTD) return of 18.58%. On a one-year basis, the index returned 67.9% and 12.11% on a 10-year basis. This is compared to the performance of the S&P 500, which returned 13.38%, 43.99%, and 20.22% on a YTD, one-year, and 10-year basis.

Composition of the S&P Midcap 400 Index

S&P describes the selection methodology of the S&P MidCap 400 Index simply as being at the discretion of the selection committee with an attempt to represent the major Global Industry Classification Standard (GICS).

As a capitalization-weighted index, the stocks with the largest market capitalization have the most impact on the index's movement while smaller companies with smaller movements have no effect on it. This is for investors who want to diversify their portfolios because market-cap weighted index funds expose investors to the movements of a small group of stocks, despite the broad name of the index itself.

The index only uses free-floating or publicly traded shares. The S&P adjusts each company's market cap to compensate for new share issues or mergers. The index value is calculated by adding the adjusted market caps of each company and dividing the result by a divisor. This divisor is proprietary information of the S&P and is not released to the public.

We can calculate a company's weighting in the index, which can provide investors with valuable information. If a stock rises or falls, we can gauge whether it will impact the overall index. This means a company with a 10% weighting will have a greater impact on the value of the index than a company with a 2% weighting.

How to Invest in the S&P 400 MidCap Index

Investors who want to consider taking advantage of the returns of the S&P MidCap 400 Index can do so through index investing. This is a passive investment style that allows investors to invest in securities that track the index to mimic its returns. These include securities like ETFs and mutual funds. The following are just two examples of funds that track this index.

The iShares Core S&P Mid-Cap ETF was launched in May 2000 and trades on the NYSE Arca under the ticker symbol IJH. As of May 7, 2021, the fund had $65.9 billion in assets. A total of 400 securities are held in the fund. The top five sectors were industrials (18.69%), financials (16.08%), consumer discretionary (14.86%), information technology (13.17%), and health care (11.52%). The fund's top five holdings were:

  • Charles River Laboratories (health care)
  • Bio-Techne (health care)
  • Molina Healthcare (health care)
  • XPO Logistics (industrials)
  • Signature Bank (industrials)

The BNY Mellon Midcap Index Fund was launched in June 1991. It requires a minimum of $2,500 to invest in the fund. As of May 7, 2021, the fund had a total of $2.55 billion in assets under management (AUM). The fund had a total of 402 holdings as of March 31, 2021. The top sectors were finance (20.61%), industrials (14.61%), health care (10.29%), technology (9.45%0, and retailing (6.02%). The fund's five holdings as of March 31, 2021, were:

  • SolarEdge (information technology)
  • Bio-Techne (health care)
  • Cognex (information technology)
  • PTC (information technology)
  • Charles River Laboratories (health care)

Advantages and Disadvantages of the S&P 400 MidCap Index

Advantages

Mid-cap stocks provide investors with a steady stream of growth. Unlike small-cap companies, mid-cap companies are more stable and are prone to less volatility when it comes to their share prices.

An index like the S&P MidCap 400 gives investors access to a more diverse base of securities. That's because there's a wide range of sectors represented on the index and many more stocks. Therefore, it can help cut down on an investor's market risk.

Unlike large-cap companies, there is usually potential for more growth when it comes to mid-cap companies. Although they're generally very established businesses, companies that fit into this category tend to have more growth in their horizons as they make their way toward becoming larger companies.

Disadvantages

Like any other investment, there's no guarantee in investing in an index like the S&P MidCap 400. It has the potential for the loss of an investor's principal. Mid-caps aren't immune to losses in value, so it's important for investors to be aware that the potential for growth and diversity doesn't necessarily mean big returns.

Some funds that track the index may come with high management fees and higher initial entry points. Although you may be able to track the success of the index, keep in mind that many funds that try to mimic its returns will require a fee payable to the fund manager or firm. The initial minimum investment for some funds may also prove difficult for some investors.

Mid-cap companies are also prone to price risk. That's because they're more volatile than large companies, which generally have steady revenue streams as a result of a trusted, long-standing business.

Pros
  • Steady growth stream

  • Diverse company and sector base, which reduces market risk

  • Growth potential

Cons
  • You may lose your principal investment

  • High fees and initial minimum investments

  • Mid-cap volatility and price risk