Mid-cap equities aren’t in the middle this year. Using the S&P 500, S&PMidCap 400, and S&P SmallCap 600 indexes, mid-caps are slightly trailing both their large- and small-cap rivals.
That doesn’t mean that the asset class should be ignored, certainly not by investors with long-term time horizons, which are historically conducive to mid-cap ownership and out-performance. In fact, now could be an opportune time for investors to revisit mid-cap stocks.
“Often things that are overlooked provide pleasant surprises. The S&P 400 Mid Cap index sometimes falls through the cracks because many investors are more interested in either big blue chips ( S&P 500 ) or small-cap stocks ( Russell 2000 ). But our work indicates that the S&P Mid Caps are on the verge of soaring higher and providing market leadership,” reports Andrew Addison for Barron’s.
If mid-caps resume leadership roles, it could pay for investors to embrace strategies already displaying leadership. Enter the WisdomTree U.S. MidCap Dividend Fund (DON ). Not only is DON beating the S&P MidCap 400 this year by 540 basis points (as of Oct. 26), the WisdomTree exchange traded fund is also handily topping the S&P 500 and the S&P SmallCap 600. Add to that, DON is sporting lower annualized volatility than all of the benchmarks mentioned here except the S&P 500.
DON’s accomplishing those impressive feats with a 30-day SEC yield that’s 107 basis points higher than that of the S&P MidCap 400 Index. Using that benchmark as a barometer, it appears that mid-cap stocks could be ready for near-term upside.
“Unlike the S&P 500, the Mid Caps have consolidated since April in a narrow price range. This compression in volatility projects that a sharp price move is directly on the horizon. Our work projects that once the mid-caps close above 2830, they will rocket higher—confirming projections to 3600-3800,” according to Barron’s.
DON, which is home to 303 stocks, has another card to play in terms of near-term relevance: It has cyclical value leanings, and some market observers are wagering that this style will rally into year-end. Also, DON allocates almost 27% of its weight to financial services stocks, positioning the fund to capitalize on rising 10-year Treasury yields, another scenario that could soon be afoot.
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