A List of The Top 10 U.S. Small & Mid-Cap ETFs (MDY, IJH, IJK, IWM, IJR, VB, IWO, IJT, IWN, IJS)

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June 29, 2011 9:48pm NYSE:IJH NYSE:IJK

David Fry:  Our goal in this profile is to help investors wade through the many competing ETF offerings available. Using our long experience as an ETF publication, we can help select those ETFs the matter and may not be repetitive. The result is a more manageable list of issues from which to


 choose from.

The following analysis features our top selections of small and mid-cap ETFs. We believe these constitute the best index-based offerings individuals and financial advisors may utilize.

Within this category list we include the top small and mid-cap blended ETFs (growth and value) as well as individual selections based on growth or value.

We’re not ranking these ETFs so don’t let the listing order mislead you. Although we may use a few of these in ETF Digest portfolios, it’s not our intention to recommend one over another.

These ETFs are based on indexes tied to well-known index providers including Russell, S&P, Barclays, MSCI, Dow Jones etc.

Uniquely, investors should remember, small and mid-cap issues usually carry higher beta (volatility or higher risk levels) than their large cap peers. This means during times of higher economic growth combined with accommodative Fed monetary policies (2009-2011) returns in these two sectors will outperform. But, the opposite situation does occur should either of these conditions.

Remaining aware of these benefits and risks should be important to every investor.

One thing you’ll note with charts posted is the similarities in trends and performance. This isn’t a coincidence given overall index constituent similarities. Further, the easy money policies of the Fed during the period covered have made performance results hardly distinguishable one from another.

S&P MidCap ETF (NYSE:MDY) is one of the blended which incorporates the growth and value segment of the S&P MidCap 400 Index. It was launched in April 1995 and has AUM (Assets under Management) over $10.5 billion with average daily trading volume just under 2M shares. The expense ratio is .25%; the current dividend is $.44 making the current yield around 1%. As of June 2011, YTD performance has been just under 4%.

You should note there are leveraged long and inverse issues that attempt to match the index not to mention futures and options contracts.

Data as of June 2011

MDY Top Ten Holdings & Weightings

  1. Vertex Pharmaceuticals (VRTX):                   0.91%
  2. Cimarex Energy Company (XEC):                 0.77%
  3. BorgWarner, Inc. (BWA):                             0.70%
  4. Lubrizol Corporation (LZ):                             0.70%
  5. Green Mountain Coffee, Inc. (GMCR):          0.63%
  6. Pride International, Inc. (PDE):                       0.63%
  7. Perrigo Company (PRGO):                            0.61%
  8. Bucyrus International, Inc. A (BUCY):           0.60%
  9. Ametek, Inc. (AME):                                     0.60%
  10. New York Community Bancorp, Inc. (NYB): 0.59%

iShares MidCap ETF (NYSE:IJH) is an alternative you could evaluate versus MDY. It’s repetitive since it follows the same index as MDY (S&P MidCap 400 ETF). It was launched in May 2000 with AUM of $11 billion and average daily trading volume of less than 1M shares. The lower trading volume than MDY with a similar amount of AUM indicates a large portion of assets here in financial plans for “buy and hold” investors. The distinguishing factor is the fee which is lower at .20%. The lower fee means slightly greater performance in return and dividend yield.

Data as of June 2011

IJH Top Ten Holdings & Weightings

  1. Vertex Pharmaceuticals (VRTX):                                  0.90%
  2. Green Mountain Coffee ,Inc. (GMCR):                         0.83%
  3. Lubrizol Corporation (LZ):                                           0.71%
  4. Cimarex Energy Company (XEC):                                0.67%
  5. BorgWarner, Inc. (BWA):                                            0.66%
  6. Dollar Tree Stores, Inc. (DLTR):                                  0.65%
  7. Bucyrus International, Inc. A (BUCY):                         0.61%
  8. SL Green Realty Corporation (SLG):                           0.61%
  9. Pride International, Inc. (PDE):                                    0.59%
  10. Perrigo Company (PRGO):                                          0.58%

iShares Russell MidCap ETF (NYSE:IWR) tracks the Russell MidCap Index. It was launched in July 2007. The expense ratio is .23% and AUM equal nearly $7 billion. The average daily trading volume is around 500K shares. The dividend is $.36% making the yield around 1.35%. The YTD return as of June 2011 has also been 4%.  Below you’ll note the holdings which are quite different from MDY. Nevertheless, the performance has been similar if not the same.

Data as of 2011-06-03

IWR Top Ten Holdings & Weightings

  1. CenturyLink, Inc. (CTL):                      0.59%
  2. Priceline.com, Inc. (PCLN):                  0.57%
  3. Cummins, Inc. (CMI):                           0.49%
  4. Network App, Inc. (NTAP):                 0.47%
  5. Coach, Inc. (COH):                              0.45%
  6. CBS Corporation B (CBS):                  0.44%
  7. FirstEnergy Corp (FE):                         0.43%
  8. Spectra Energy Corp (SE):                   0.42%
  9. Equity Residential (EQR):                     0.41%
  10. Salesforce.com, Inc. (CRM):                0.40%

iShares Russell MidCap Growth (NYSE:IWP) follows the Russell MidCap Growth Index. It was launched in July 2001. The expense ratio is .25%. AUM equal $3.2 billion and average daily trading volume is just under 500K shares. The current dividend is $.10 making the current yield less than .75% with the YTD return as of June 2011 of 4.50%.

Alternative issues to consider include iShares S&P MidCap 400 Growth ETF (NYSE:IJK) and Vanguard MidCap Growth ETF (NYSE:VOT) which tracks the MSCI US MidCap Growth Index. VOT should merit your attention given its low expense ratio of .15% with similar holdings. Despite its more recent appearance, launched in August 2006, it certainly has enough liquidity with $1.2 billion in AUM and 135K average daily trading volume. Technically it’s in the same shape as the others mentioned.

Data as of June 2011

IWP Top Ten Holdings & Weightings

  1. Priceline.com, Inc. (PCLN):                               1.19%
  2. Cummins, Inc. (CMI):                                        1.02%
  3. NetApp, Inc. (NTAP):                                       0.98%
  4. Coach, Inc. (COH):                                           0.94%
  5. Salesforce.com, Inc. (CRM):                              0.85%
  6. Agilent Technologies, Inc. (A):                           0.84%
  7. T. Rowe Price Group (TROW):                         0.80%
  8. Citrix Systems, Inc. (CTXS):                             0.79%
  9. Altera Corp. (ALTR):                                        0.75%
  10. Marsh & McLennan Companies, Inc. (MMC):  0.74%

iShares Russell MidCap Value ETF (NYSE:IWS) tracks the Russell MidCap Value Index. It was launched in July 2001. The expense ratio is .31%. AUM equal $3 billion and average daily trading volume is around 825K shares. The current dividend is $.20 making the current yield as of June 2011 roughly1.70% with YTD return of approximately 2.75%.

Alternative choices might include iShares S&P 400 MidCap Value ETF (NYSE:IJJ) with AUM of $2 billion and an expense ratio of .25% and Vanguard MidCap Value ETF (NYSE:VOE) Again VOE with a lower expense ratio at .15% may be the better long term holding while tracking the MSCI US MidCap Value Index. As of June 2011 the YTD return has been 3.53% with a dividend yield of 1.80%.

Data as of June 2011

IWS Top Ten Holdings & Weightings

  1. CenturyLink, Inc. (CTL):                                  1.13%
  2. FirstEnergy Corp (FE):                                     0.83%
  3. Spectra Energy Corp (SE):                               0.79%
  4. CBS Corporation B (CBS):                             0.74%
  5. Lorillard, Inc. (LO):                                         0.74%
  6. Peabody Energy Corporation (BTU):               0.73%
  7. Equity Residential (EQR):                                0.73%
  8. Noble Energy, Inc. (NBL):                              0.72%
  9. PPL Corp (PPL):                                            0.72%
  10. Ingersoll-Rand PLC (IR):                                0.71%

iShares Russell 2000 ETF (NYSE:IWM) tracks the Russell 2000 index which consists of the smallest 2000 stocks in the Russell 3000 index. It was launched in May 2000. AUM equal $15 billion and average daily trading volume exceeds 59M shares. The expense ratio is .28%. The dividend is $.17 making the current yield roughly .85%. The YTD return through June 2011 is 1.66%.

Here too there are numerous leveraged long and inverse ETFs linked to the index not to mention futures and options contracts.

Data as of June 2011

IWM Top Ten Holdings & Weightings

  1. Riverbed Technology, Inc. (RVBD):                               0.40%
  2. TIBCO Software, Inc. (TIBX):                                     0.37%
  3. Rackspace Hosting, Inc. (RAX):                                   0.33%
  4. VeriFone Systems, Inc. (PAY):                                     0.32%
  5. American Capital Agency Corp. (AGNC):                    0.30%
  6. Amerigroup Corporation (AGP):                                   0.29%
  7. Brigham Exploration Company (BEXP):                        0.28%
  8. Acme Packet, Inc. (APKT):                                          0.28%
  9. Nordson Corporation (NDSN):                                    0.28%
  10. Deckers Outdoor Corporation (DECK):                       0.28%

iShares S&P 600 SmallCap 600 ETF (NYSE:IJR) tracks the S&P SmallCap 600 Index. It’s probably a better reflection of small cap stocks than the larger IWM issue. Nevertheless they both achieve similar results. The fund was launched in May 2000. AUM equal nearly $7 billion and average daily trading volume is around 1.3M shares. The expense ratio is .20% which is lower than IWM’s. The dividend is $.13 making the yield around .75%. As of June 2011 YTD performance is roughly 2.70%.

Data as of June 2011

IJR Top Ten Holdings & Weightings

  1. Regeneron Pharmaceuticals, Inc. (REGN):                  0.86%
  2. Amerigroup Corporation (AGP):                                0.68%
  3. Healthspring, Inc. (HS)                                               0.56%
  4. Lufkin Industries, Inc. (LUFK):                                  0.54%
  5. Holly Corporation (HOC):                                         0.54%
  6. Biomed Realty Trust, Inc. (BMR):                              0.52%
  7. World Fuel Services Corporation (INT):                    0.50%
  8. Mid-America Apartment Communities (MAA):          0.47%
  9. Kilroy Realty Corporation (KRC):                             0.47%
  10. Home Properties, Inc. (HME):                                   0.46%

Vanguard Small-Cap ETF (NYSE:VB) tracks the MSCI US Small Cap 1750 Index which of course means the universe of 1750 small cap stocks in U.S. markets. The fund was launched in January 2004. AUM equal $4.4 billion and average daily trading volume exceeds 375K shares. The expense ratio is .15% which is low among its peers. The current dividend yield is 1.11% based on an annual dividend of $.84. As of June 2011 the YTD return is approximately 3.50%.

Data as of June 2011

VB Top Ten Holdings & Weightings

  1. Informatica Corporation (INFA):                                   0.28%
  2. VeriFone Systems, Inc. (PAY):                                     0.27%
  3. SM Energy Company (SM):                                         0.27%
  4. SandRidge Energy, Inc. (SD):                                       0.27%
  5. JDS Uniphase Corporation (JDSU):                              0.27%
  6. CMT Market Liquidity Rate:                                         0.27%
  7. TIBCO Software, Inc. (TIBX):                                      0.26%
  8. Polycom, Inc. (PLCM):                                                 0.25%
  9. Tractor Supply (TSCO):                                               0.25%
  10. Brigham Exploration Company (BEXP):                        0.25%

iShares Russell 2000 Growth ETF (NYSE:IWO) tracks the Russell 2000 Growth Index which includes the 2000 small cap companies in the U.S. equity market. The fund was launched in July 2000. The expense ratio is .25%. AUM exceeds $4 billion and average daily trading volume is over 1.8M shares. As of June 2011 the dividend yield is .35% based on an annual dividend of $.32. The YTD return is approximately 4.20%.

Alternative choices include iShares S&P SmallCap 600 Growth ETF (NYSE:IJT) which follows the S&P SmallCap 600/Citigroup Growth Index. It features an expense ratio of .25%. AUM equal $1.8 billion with average daily volume of 214K shares and YTD return of over 6%. Also available is Vanguard Small-Cap Growth ETF (NYSE:VBK) tracks the MSCI US Small Cap Growth Index. AUM exceeds $2.2 billion and average daily trading volume is only 230K shares indicating an ETF more likely with financial advisor portfolios given the lower fee. As of June 2011 YTD performance is roughly 5.60%.

Data as of June 2011

IWO Top Ten Holdings & Weightings

  1. Riverbed Technology, Inc. (RVBD):                             0.77%
  2. TIBCO Software, Inc. (TIBX):                                    0.71%
  3. Rackspace Hosting, Inc. (RAX):                                  0.64%
  4. VeriFone Systems, Inc. (PAY):                                    0.62%
  5. Brigham Exploration Company (BEXP):                       0.55%
  6. Acme Packet, Inc. (APKT):                                         0.54%
  7. Nordson Corporation (NDSN):                                   0.54%
  8. Deckers Outdoor Corporation (DECK):                      0.53%
  9. Polaris Industries, Inc. (PII):                                         0.52%
  10. Pharmasset, Inc. (VRUS):                                            0.49%

Vanguard Small-Cap Value ETF (NYSE:VBR) follows the MSCI US Small Cap Value Index. The fund was launched in January 2004. The expense ratio is the lowest in the group at .15%. AUM are near $2.2 billion while average daily trading volume is only 120K shares which indicates a high use by financial advisors attracted by the lower expense ratio. The annual dividend is $1.27 making the yield 1.85%. YTD performance as of June 2011 is approximately 1.40%.

Alternative choices include iShares Russell 2000 Value ETF (NYSE:IWN) tracks the Russell 2000 Value Index and is the oldest of the group being launched in July 2000. It also has the highest expense ratio at .41%. iShares S&P SmallCap 600 Value ETF (NYSE:IJS) follows the S&P SmallCap 600/Citigroup Value Index and completes the value area selections for now. It was launched in July 2000 and has an expense ratio of .25%.

Data as of June 2011

VBR Top Ten Holdings & Weightings

  1. Corn Products International, Inc. (CPO):                     0.46%
  2. Camden Property Trust (CPT):                                    0.46%
  3. Domtar Corporation (UFS):                                        0.46%
  4. Essex Property Trust (ESS):                                        0.46%
  5. Williams-Sonoma, Inc. (WSM):                                  0.46%
  6. Tupperware Brands Corporation (TUP):                     0.45%
  7. Hubbell, Inc. B (HUB.B):                                           0.44%
  8. American Capital Agency Corp. (AGNC):                  0.43%
  9. Snap-on, Inc. (SNA):                                                 0.41%
  10. Waddell & Reed Financial, Inc. (WDR):                     0.41%

As with other sectors, remember ETF sponsors must issue and their interests aren’t aligned with yours. They have a business interest and wish to have a competitive presence in any popular sector.

Mid and Small Cap ETF sectors have responded well to preexisting Fed policies of ZIRP (Aero Interest Rate Policies) and especially well to QE (Quantitative Easing). Since these sectors have higher betas (volatility and risk) they can outperform on the upside when markets are moving higher abetted by Fed policies. Naturally, the opposite can and will occur when markets correct or head south. We advise risk averse investors to use caution in this regard.

For further information about portfolio structures using this or other ETFs see http://www.etfdigest.com/.

You may address any feedback to: [email protected]

(Source for holding data is from ETF Database and from various sponsors.)

Written By David Fry From ETF Digest 

David is founder and publisher of ETF Digest and best selling book author of Create Your Own ETF Hedge Fund, A DIY Strategy for Private Wealth Management published by Wiley Finance in 2008.  In July of 2009, Fry was named in the ETF Hall of Fame as one of the Top 25 people who revolutionized the ETF industry and guided ETF investing from its conception to widespread acceptance among all breeds of investors. Fry founded the ETF Digest in 2001 and was among the very first to see the need for an online publication that provided individual investors and financial professionals with trading tools, market information and actionable advice on ETF investing.  ETF Digest was recently ranked 9th in the Top 100 ETF websites from Alexa on exchange traded funds. Dave Fry has devoted over 35 years to the business of trading and portfolio management. He is registered as an arbitrator with the Financial Industry Regulatory Authority (FINRA) and the National Futures Association (NFA).


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