Thousands of mid-cap companies trade on the US markets. These companies generally tend to have small market caps of $1 billion to $5 billion. Though the actual definition of mid-cap companies varies, they can be considered as firms that are neither huge such as the giants with multi-billion market caps or very small with a few million dollar market caps or start-up companies. Investing in these middle of the range companies is extremely tricky and investors are better off investing in them via ETFs.
Some of the reasons to invest in mid-cap stocks using ETFs are listed below:
- Mid-cap stocks are extremely volatile and investing in ETFs reduces the volatility risk.
- It is very difficult to follow and keep track of all the news and earnings releases from these firms.
- Individual mid-cap stocks are very risky to invest since picking the winners from so many choices is not easy.
- Some of these companies have low trading volumes which makes them volatile and difficult to trade.
- Many of these mid-caps do not pay dividends or have very low dividend yields making them unattractive for dividend reinvestment for higher returns.
- As the dividend yields are tiny or zero, they are not income producing investments. Hence they are not preferred by income investors.
- Diversification benefits offered by an ETF are simply impossible to replicate for retail investors.
- Investing in mid-caps through mutual funds is an expensive proposition as mutual fund companies charge higher fees for these funds.
Some of the ETFs to invest in the mid-cap space include:
- S&P MidCap 400 SPDR ETF (MDY)
- iShares Russell Midcap Index Fund (IWR)
- iShares S&P MidCap 400 Index Fund (IJH)
- iShares Russell Midcap Growth Index Fund (IWP)
- Powershares Dynamic Mid Cap Growth Portfolio Fund (PWJ)
- Powershares Dynamic Mid Cap Portfolio Fund (PJG)
- Schwab U.S. Mid-Cap ETF (SCHM)
- SPDR Dow Jones Wilshire Mid Cap ETF (EMM)
- SPDR S&P 400 Mid Cap Growth ETF (MDYG)
- Vanguard Mid-Cap ETF (VO)
- Vanguard Mid-Cap Growth ETF (VOT)
- Vanguard S&P Mid-Cap 400 ETF (IVOO)
- Vanguard S&P Mid-Cap 400 Growth ETF (IVOG)
Disclosure: No Positions