Mid-Cap ETFs Looking Good Amid Market Uncertainties
Investors seeking to capitalize on the strong fundamentals but worried about uncertainty should consider mid-cap ETFs.
Wall Street has of late been surprising with rallies despite rising delta variant cases. Investors are however on the edge considering certain factors that might impact the current investing environment. Factors like surging delta variant cases and the Federal Reserve meeting where it might announce its plan to taper bond purchases are also raising worries. U.S. consumers also seem worried about the sustainability of economic recovery from the pandemic-led slump, surging delta variant threat and increasing inflation levels.
Intensifying investors’ concerns further, September is historically considered the worst-performing month for Wall Street. Meanwhile, analysts expect a market correction in September. According to the LPL Financial data published in a Yahoo Finance article, the S&P 500 has fallen about 1%, on average, in September since 1950.
Certain economic data releases have also turned out to be very disappointing. The U.S. economy added only 235,000 jobs in August 2021 (the lowest in seven months). The metric was far behind the forecast of 750,000 as a surge in COVID-19 infections probably kept companies from hiring and workers from actively looking for a job (per a CNBC article). The U.S. unemployment rate declined to 5.4% in July 2021, below market expectations of 5.7%. The number of unemployed persons dropped by 782,000 to 8.7 million.
New COVID-19 cases are being registered among the unvaccinated population. Only 53% of the total U.S. population is fully vaccinated, which means that it’s a long way to achieving herd immunity. Per Johns Hopkins University data, the seven-day average of new COVID-19 cases surged more than 300% over the Labor Day reading of the previous year (per a CNN report).
The resurging cases might scare investors as they worry about the implementation of new lockdown measures to control the spread, which may hurt the global economic recovery achieved so far.
Making the situation more intense, Goldman Sachs (GS) has downgraded its economic outlook mentioning the highly-contagious delta variant and diminishing fiscal stimulus support as major concerns (per a CNBC article). The investment bank now forecasts 5.7% annual growth for 2021 versus the 6.2% consensus. The firm has also trimmed its fourth-quarter GDP expectation to 5.5% from 6.5%, as stated in the same CNBC article.
Meanwhile, the FDA granting the first full U.S. approval to Pfizer (PFE)/BioNTech’s (BNTX) coronavirus vaccine, Comirnaty (BNT162b), has also boosted investors’ confidence.
The full FDA approval is expected to increase the confidence for imposing vaccine mandates. Also, the unvaccinated population is now more likely to opt for vaccinations. According to a CNBC article, the Kaiser Family Foundation survey reflected that three in 10 unvaccinated adults were more likely to get jabbed if one of the vaccines received full approval. The market participants are also upbeat about the chances of peaking delta variant cases. Investors are also relieved about the Fed’s intention to not hike interest rates in the near term.
The latest ISM Manufacturing Purchasing Managers' Index (PMI) data for the United States is painting a rosy picture for the industrial sector. The metric rose to 59.9 in August from 59.5 in July and surpassed forecasts of 58.6, per a Reuters article. Any reading above 50% indicates expansion in U.S. manufacturing activities. Notably, the manufacturing sector, which makes up 11.9% of the U.S. economy, saw the reading marking the 15th consecutive month of growth.
Mid-Cap ETFs to Consider
Considering the mixed sentiments, mid-cap funds are gaining increased attention as they provide both growth and stability in comparison to the small-cap and large-cap counterparts. As such, investors seeking to capitalize on the strong fundamentals but worried about uncertainty should consider mid-cap ETFs. Below, we have presented five popular mid-cap ETFs:
Vanguard Mid-Cap ETF VO
The fund seeks to track the performance of the CRSP US Mid Cap Index, which measures the investment return of mid-capitalization stocks. It has AUM of $53.38 billion. It charges a fee of 4 basis points (bps) (read: A Quick Guide to the 25 Cheapest ETFs).
SPDR S&P MIDCAP 400 ETF Trust MDY
The fund seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P MidCap 400 Index. It has AUM of $21.32 billion. It charges a fee of 23 bps (see: all the Mid Cap ETFs here).
iShares Russell Mid-Cap Value ETF IWS
The fund provides exposure to mid-sized U.S. companies that are thought to be undervalued by the market relative to comparable companies and tracks the Russell MidCap Value Index. It has AUM of $14.61 billion. It charges a fee of 23 bps.
Vanguard Mid-Cap Growth ETF VOT
The fund seeks to track the performance of the CRSP US Mid Cap Growth Index, which measures the investment return of mid-capitalization growth stocks. It has AUM of $12.01 billion. It charges a fee of 7 bps.
Schwab U.S. Mid-Cap ETF SCHM
The fund’s goal is to track as closely as possible, before fees and expenses, the total return of the Dow Jones U.S. Mid-Cap Total Stock Market Index. It has AUM of $10.09 billion and charges a fee of 4 bps.
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SPDR S&P MidCap 400 ETF (MDY): ETF Research Reports
Schwab U.S. MidCap ETF (SCHM): ETF Research Reports
iShares Russell MidCap Value ETF (IWS): ETF Research Reports
Vanguard MidCap Growth ETF (VOT): ETF Research Reports
Vanguard MidCap ETF (VO): ETF Research Reports
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