With large-cap stocks faltering, smaller equities might be the furthest assets from investors’ minds. But recent equity market weakness may bely opportunity with smaller companies. Those include companies in the oft-overlooked midcaps space.
The midcap arena is viewed as difficult one in which to stock-pick. But that burden is reduced by ETFs like the WisdomTree U.S. MidCap Dividend Fund (DON ). Year to date, the fund isn’t setting the world on fire. But it is proving the benefits of a quality dividend, value-oriented strategy. That’s because the ETF is beating the S&P MidCap 400 Index by 230 basis points. It’s also sporting significantly less annualized volatility than the midcap benchmark.
Those data points reflect less than three months of performance. But they can also be interpreted as supportive of the long-term DON thesis. Indeed, historical data is on the side of midcap equities.
“$100 invested in mid-caps 40 years ago would be $13,400 today vs $9,500 for large caps and $5,000 for small. Despite strong performance, mid-caps typically fly under the radar. We maintain our favorable view on mid cap ETFs,” according to Bank of America research.
Midcaps Under-Owned, But Catalysts Exist
Midcap stocks and ETFs such as DON have long been under-owned relative to large- and small-cap equivalents, as advisors and retail investors have often favored the perceived safety of larger stocks and growth opportunities associated with small-caps over stocks in the middle. Data confirms the under-owned status of midcap equities and ETFS.
“Mid-caps are under-owned. The group has attracted just 5% of total ETF flows in the past 20 years despite accounting for 33% of US corporate EPS growth since 1995,” added Bank of America. “Mid cap ETFs have just $344bn in total assets compared to >$5tn for large.”
Rebound Candidate
DON has $3.56 billion in assets under management and turns 19 years old in June. That makes it one of the more venerable, battle-tested ETFs in this category. As for the remainder of 2025, DON could be a rebound candidate due to its cyclical exposure.
“Cyclical expansion should bolster mid cap returns. The US manufacturing ISM is >50 for the first time since October 2022 and US policy looks primed to revitalize domestic industry. Higher activity should support returns-mid caps are overweight cyclical sectors like industrials and materials, with a >20% underweight to tech,” concluded Bank of America.
Financial services, industrials, and consumer discretionary are among the five cyclical sectors. DON allocates approximately half its weight to those three groups.
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