In this piece, we will take a look at the 12 best mid-cap value ETFs. If you want to skip our primer on value and mid-cap investing as well as the latest trends in the stock market, then check out 5 Best Mid-Cap Value ETFs.
The stock market is filled with thousands of companies with different characteristics. These firms can be divided into several categories, such as the industries they belong to, investor sentiment about their share price, and their market capitalization. In terms of market capitalization, each category lends the firms being covered several distinct characteristics that correspond primarily to their operational scope and business models.
Some of the most popular options among investors are stocks that are classified as mid-cap, large cap, or mega cap. These are shares of relatively established companies, and their market value ranges between $2 billion which is the starting point for a mid-cap stock to trillions of dollars where large technology behemoths such as Apple Inc (NASDAQ:AAPL) trade. When compared to their small, nano, and micro cap peers, mid-cap and bigger stocks offer some simple advantages to investors. These include liquidity in their shares which makes trading easier and stable business performance that removes volatility from the share price during periods of normal trading.
At the same time, mega cap stocks often provide smaller opportunities for the vigilant investor to make a profit. After all, their shares are often worth hundreds of dollars a piece, and this limits the percentage gains that a firm with a low share price can offer. So, while investing solely in them offers stability, the catch is lower returns. At the same time, small cap stocks can either be highly volatile, belong to less established firms that can suffer massive share price drops, or be a target of scammers through pump and dump scams.
So, mid-cap stocks can offer the best of both worlds on a purely theoretical basis. Their shares are not as expensive as their large cap peers, so they offer the potential for robust returns. At the same time, the stocks are also less susceptible to rapid share price movements due to relatively established business models.
Another metric that is quite popular among professional investors when it comes to gauging whether a profit can be made through share price appreciation is the concept of 'value'. While for the general public, value is often a gauge of how well a product provides relative to its sticker price, for shares the definition changes slightly. While these stocks do offer a great bang for the buck, the main reason for this is that investors believe that the share price has the potential to grow in the future and increase the investment's value. Value investing is a central tenet of the investment philosophy of Warren Buffett, and it often involves computing a margin of safety that further protects the investor against any downturn in a share price in case of untoward events.
The importance of value stocks for any portfolio has grown particularly during the second half of this year. The first half of 2023 stunned a lot of quarters as major stock indexes soared and some even posted historic gains. However, the second half has been relatively muted even as the third quarter is about to end. This is because investors are wary about the future of the economy, with two key questions being the scale of a potential economic downturn and additional interest rate hikes from the Federal Reserve. So far, the former front has done quite well as the U.S. economy delivered growth in the second quarter, but the second front is proving to be a bit trickier particularly since oil prices are soaring to record high levels after production cuts by Saudi Arabia.
The Labor Department's inflation data for August showed that on an annual basis, the Federal Reserve's favored inflation metric, core inflation, stood at 4.3% on an annual basis in August, dropping from the 4.7% that it had stood in July. While this is news for cheer since it shows that the motive for further interest rate hikes is dropping, it does little to provide any hope whatsoever that interest rates will start coming down soon. These expectations are at the heart of stock market performance these days and should the current sentiment change, then do expect some good movement in major indexes.
Yet, the future especially for the remainder of the year remains uncertain. Another data set that accompanied the August inflation data from the Labor is the producer price index which measures wholesale prices at which retailers buy products from entities that are upstream in the supply chain. This index jumped by 1.6% year over year in August, as it accelerated from the 0.8% gain in the prior month. However, there might be solace in the fact that producer prices are lagging consumer prices when it comes to upward price movements, so inflation should remain on a downward trend moving forward.
With these details in mind, we decided to take a look at the top mid-cap value ETFs, with some notable picks being Cambria Shareholder Yield ETF (BATS:SYLD), Pacer US Cash Cows 100 ETF (BATS:COWZ), and Invesco S&P MidCap 400 Revenue ETF (NYSE:RWK).
To compile our list of the best mid-cap value ETFs, we first made a list of the 20 largest mid-cap value funds as classified by Morningstar Financial. Then, they were ranked through their trailing five year daily total returns and the mid-cap value ETFs with more than 6% in returns were selected.
Best Mid-Cap Value ETFs
12. Invesco High Yield Equity Dividend Achievers ETF (NASDAQ:PEY)
5 Year Return: 6.09%
Invesco High Yield Equity Dividend Achievers ETF (NASDAQ:PEY) is part of the Invesco fund family and has $1.3 billion in net assets. It is made up of 50 stocks and primarily follows a NASDAQ dividend stock index. The fund was set up in 2004 and nearly a quarter of its holdings are concentrated in the financial services sector. The ETF joins Pacer US Cash Cows 100 ETF (BATS:COWZ), Cambria Shareholder Yield ETF (BATS:SYLD), and Invesco S&P MidCap 400 Revenue ETF (NYSE:RWK) in our list of the best mid cap value ETFs.
11. iShares S&P Mid-Cap 400 Value ETF (NYSE:IJJ)
5 Year Return: 6.25%
The iShares S&P Mid-Cap 400 Value ETF (NYSE:IJJ) is one of the largest funds on our list since it has $7.12 billion in net assets. As the title suggests, it focuses purely on mid-cap firms and further narrows its focus down on the stocks that are part of the S&P 400 MidCap index. The fund was set up in 2000, and its biggest investments include Jabil Inc. (NYSE:JBL), Equity LifeStyle Properties, Inc. (NYSE:ELS), and Regal Rexnord Corporation (NYSE:RRX).
10. Vanguard S&P Mid-Cap 400 Value Index Fund (NYSE:IVOV)
5 Year Return: 6.30%
Vanguard S&P Mid-Cap 400 Value Index Fund (NYSE:IVOV) has invested in nearly 300 companies. It has total assets of $911 million, out of which most are invested in stocks. The fund has a NAV of $79, which is slightly lower than its market price. The median market cap of the firms that are part of the ETF is $6.3 billion with the average price to earnings ratio being 14.6. Apart from Jabil Inc, other major stock investments are in Equity LifeStyle Properties, Inc. (NYSE:ELS) and Regal Rexnord Corporation (NYSE:RRX).
9. SPDR S&P 400 Mid Cap Value ETF (NYSE:MDYV)
5 Year Return: 6.32%
SPDR S&P 400 Mid Cap Value ETF (NYSE:MDYV) is another exchange traded fund that tracks the S&P 500 MidCap index. It is a sizeable ETF with net assets of $2.3 billion. The fund was set up in 2005 and it has a price to earnings ratio of 13.03. As part of the selection criteria, the fund looks at book value to price, the price to earnings, and the price to sales ratios. The top holdings are similar to the Vanguard S&P Mid-Cap 400 Value Index Fund.
8. SPDR S&P Dividend ETF (NYSE:SDY)
5 Year Return: 6.79%
SPDR S&P Dividend ETF (NYSE:SDY) is another ETF that is part of the State Street fund family. It tracks the S&P's well known dividend aristocrat index which is made of firms that have grown their dividends consecutively each year for more than two decades. Industrial stocks account for nearly a quarter of the SPDR S&P Dividend ETF (NYSE:SDY)'s holdings, and the top three stocks that it has invested into are 3M Company (NYSE:MMM), International Business Machines Corporation (NYSE:IBM), and AbbVie Inc. (NYSE:ABBV).
7. Vanguard U.S. Value Factor ETF (BATS:VFVA)
5 Year Return: 7.27%
Vanguard U.S. Value Factor ETF (BATS:VFVA) is part of the Vanguard fund family and has $601 million in net assets. It is a pureplay value fund that uses mathematical models and formulations to determine which stocks are favorably trading below their fundamental value on the stock market. The fund's benchmark index is the Russell 3000 index, and its top three investments, namely Bank of America Corporation (NYSE:BAC), Verizon Communications Inc. (NYSE:VZ), and General Motors Company (NYSE:GM), are all mid-cap stocks.
6. Vident U.S. Equity Strategy ETF (NYSE:VUSE)
5 Year Return: 8.36%
Vident U.S. Equity Strategy ETF (NYSE:VUSE) belongs to the Vident Financial funds family and has net assets worth $602 million. The fund tracks the Vident Core U.S. Equity index, and it was set up in 2014. While the Vident U.S. Equity Strategy ETF (NYSE:VUSE) has invested in mega cap stocks such as Microsoft Corporation (NASDAQ:MSFT), it is still classified as a mid-cap value ETF by Morningstar.
Cambria Shareholder Yield ETF (BATS:SYLD), Vident U.S. Equity Strategy ETF (NYSE:VUSE), Pacer US Cash Cows 100 ETF (BATS:COWZ), and Invesco S&P MidCap 400 Revenue ETF (NYSE:RWK) are some top mid cap value ETFs.
