If investors entered 2025 excited by the prospect of rising small caps, they may first want to consider midcaps. Midcap firms offer much of the same upside that small caps do, with some additional benefits from their larger size. With many investors looking to diversify away from concentration risk, midcaps present one strong opportunity set. An enhanced midcap ETF like FMDE, in particular, could provide a compelling option therein.
See more: Look to Small- and Midcap ETF Upside in FFSM
The Fidelity Enhanced Mid Cap ETF (FMDE ), converted from a mutual fund in 2023. Charging a relatively low fee of just 23 basis points (bps), FMDE actively invests in companies in the Russell Midcap Index. Specifically, FMDE leans on computer-aided quantitative analysis to measure factors like historical valuation, profitability, and growth. On top of that, the enhanced midcap ETF also engages in some income generation via securities lending.
Midcap Firms in Enhanced Midcap ETF FMDE
Many investors are on the lookout for firms outside of those megacap tech names that drove so much growth in 2024. Given how just a handful of those names drove a preponderance of that growth, a selloff impacting those names would have a serious negative impact on many investor portfolios. Diversifying toward firms of other market capitalizations in other sectors can help.
While that has helped drive growing interest in small caps, potentially benefitting from the lagging impact of rate cuts, small caps have their own issues. Given their smaller balance sheets and often significant debt loads to pay for future revenue, they may be particularly vulnerable.
Midcap firms, by contrast, have larger balance sheets and may be better positioned overall. At the same time, smaller than large caps, they have more room to grow than those huge names. A strategy like FMDE can find the best opportunities in that middle category. Having returned 21.2% from a NAV perspective over the last year as of December 31st, per Fidelity Investments data, the fund could play a helpful role in 2025, too.
For more news, information, and analysis, visit the ETF Investing Channel.
Fidelity Investments® is an independent company unaffiliated with VettaFi LLC (“VettaFi”). These articles do not form any kind of legal partnership, agency affiliation, or similar relationship between VettaFi and Fidelity Investments, nor is such a relationship created or implied by the articles herein. VettaFi LLC is the author and owner of these articles.
