Large cap technology companies might have the upper hand at the moment amid the market uncertainty surrounding the coronavirus pandemic, but it doesn’t mean they should have all the fun—look for opportunities in midcap exchange-traded funds (ETFs).
“Active traders spend countless hours scouring the markets for niche segments that look poised to outperform the broader markets,” wrote Casey Murphy in an Investopedia article. “The one group that is gaining prominence on the watch lists of traders is mid-cap growth stocks. This group traditionally comprises companies with market capitalization ranging from approximately $2 billion to just north of $10 billion. These companies also often display earnings power that is set to outpace the broader market. In this article, we’ll take a look at several charts and try to determine how traders will be looking to position themselves over the weeks and months ahead.”
Growth opportunities can be had in mid cap companies that are still in the early stages of their businesses, which can lead to scalable growth under the right stewardship. As such, investors can look at the Principal U.S. Small-MidCap Multi-Factor Core Index ETF (PSM).
PSM seeks to provide investment results that closely correspond, before expenses, to the performance of the Nasdaq US Small Mid Cap Select Leaders Core Index. Under normal circumstances, the fund invests at least 80% of its net assets in equity securities of U.S. companies with small- to medium-market capitalizations that compose the index at the time of purchase. The index uses a quantitative model designed to identify equity securities of companies in the Nasdaq US Small Cap Index and Nasdaq US Mid Cap Index that exhibit potential for high degrees of sustainable shareholder value, growth, and strong momentum.
“The mid-cap growth segment of the financial markets seems to be positioned better than most from a technical perspective and will likely capture the attention of bullish active traders for weeks to come,” Murphy wrote. “More specifically, nearby support levels and breakouts beyond key levels of resistance provide ample trading opportunities with a defined level of risk.”
PSM gives investors exposure to:
- An index-aware design: Deviates from traditional cap-weighted indexes, applying a multifactor model and modified weighting process.
- A Rules-based framework: Selects securities with high factor scores while diversifying through industry neutrality and mitigating excess liquidity and volatility risks.
- Multi-factor construction: Combines three distinct factors – shareholder yield, momentum, and quality growth.