Over the years, mid-cap equities have certainly held their ground, proving to be a useful and potentially lucrative allocation for many investors’ portfolios. Despite their solid performance, some investors take a “barbell” approach to equities, shifting assets primarily to large and small cap funds, believing that the risk-return profile of mid-caps fall somewhere in between. While this assumption may hold true in some cases, there have been numerous mid-cap ETFs that have broken this mold, significantly outperforming their large and small cap counterparts [see also Gold ETFs In 2012: The Good, The Bad, And The Ugly].
For investors looking to gain exposure to mid-cap equities, there are a number of popular options, but perhaps the best way to start sifting through the space is tolook at the funds that have delivered outstanding returns. Below, we highlight five mid-cap ETF standouts, whose double-digit returns over the past five years may convince some investors to include them in their long-term portfolios:
1. Mid-Cap Core ETF (CZA)
This unique offering from Guggenheim takes a quant-based approach to the mid-cap segment by tracking an index that is designed to potentially outperform traditional cap-weighted indexes. CZA is based on the Zacks Mid-Cap Core Index, a benchmark that seeks to select a group of about 100 securities with the potential to outperform the Russell Midcap Index or the S&P MidCap 400 Index based on several quantitative factors. Over the last five years, CZA’s methodology has paid off, placing the fund at the top of our list with a five-year return of just over 27%.
2. Mid Cap Core AlphaDEX (FNX)
This fund comes out of the First Trust’s popular lineup of AlphaDEX funds. The benchmark underlying FNX is an “enhanced” index that employs the proprietary AlphaDEX methodology to select stocks from the S&P MidCap 400 Index. The selection process is designed to either minimize exposure to, or completely eliminate, the least promising stocks from the index. The AlphaDEX methodology has proven its potential to outperform other traditional mid-cap weighted indexes, seeing as how FNX has gained more than 22% over the last five years [see also AlphaDEX ETFdb Portfolio].
3. S&P MidCap 400 Index Fund (IJH)
Although it may be surprising to find a traditional cap-weighted fund in the mix of these more “sophisticated” products, iShares’ IJH has certainly shown that it’s worth its salt. The fund’s methodology is quite simple: IJH tracks the S&P MidCap 400 Index, a benchmark designed to measure the performance of the mid capitalization sector of the U.S equities market. Not only is IJH the largest ETF in its category, the plain-vanilla fund has also managed to produce a 15% return over the last five years. Similarly, State Street’s SPDR MidCap Trust Series I (MDY), which tracks the same index, has gained over 14%.
4. SPDR DJ Wilshire Mid Cap ETF (EMM)
Another traditional cap-weighted fund, EMM also offers exposure to the mid-capitalization sector of the U.S. equities market, but does so with a focus on blue chip stocks. The fund tracks the Dow Jones U.S. Mid-Cap Total Stock Market Index, a benchmark consisting of over 500 individual securities spread out relatively evenly across multiple sectors. EMM’s double-digit return of over 13% places it in the ranks of the top mid-cap ETF standouts over the last five years [see also How To Pick The Right ETF Every Time].
5. Morningstar Mid Core Index Fund (JKG)
iShares’ JKG focuses its attention on mid-cap stocks that exhibit “average” growth and value characteristics. The resulting portfolio is well-balanced with each of its 200 individual securities receiving a weighting of no greater than 1.36%. JKG also features exposure to a number of sectors, but has a slight tilt towards industrials and consumer cyclicals. Over the last five years, JKG has provided a nice 12% return for its investors.
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Disclosure: No positions at time of writing.