Three Mid Cap Value ETFs For Investors To Consider

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November 25, 2013 2:12pm NYSE:EZM NYSE:JKI

etfsThanks to an improving economy, decent earnings growth and easy monetary policy, the U.S. markets are flying higher with the Dow and the S&P 500 finally breaking the 16,000 and 1,800 milestones, respectively. China’s new economic reform


plans further supported the broad rally.

However, some concerns have started to build over the recent surge and some market analysts have been warning about the possibility of a correction  in the coming weeks. This could happen, as valuations appear a bit rich at current levels and earnings growth seems to be driven by cost cutting rather than revenue growth.

This brings volatility back into the market, compelling investors to look for both growth and stability at the same time in their portfolio. This can easily be achieved by investing in the often overlooked mid cap ETFs that offers the best of both worlds.

While small caps are leading the market higher, mid caps are arguably safer options for substantial growth with lower risk and outperforming large cap cousins. In addition, mid caps could be better positioned if political issues like another government shutdown, debt debacle or Fed tapering creep into the picture (read: 3 Small Cap Sector ETFs Leading the Market).

Furthermore, by honing in on value stocks in this capitalization level, more safety can be assured to investors. The mid cap value funds offer exposure to a wide variety of stocks with value characteristics, such as low P/B, low P/S and low P/E ratios, which reduce company-specific risks.

Further, according to various academic studies, value stocks have outperformed the growth ones over the long term and delivered higher returns with lower volatility.

Given this, investors may want to consider cycling into mid cap value space in order to obtain a nice momentum play to close out the year. While looking at individual companies is certainly an option, a focus on top ranked mid cap value ETFs could be a less risky way to tap into the same broad trends.

Top Ranked Mid Cap Value ETF in Focus

We have found a number of ETFs that have the top Zacks ETF Rank of 1 or ‘Strong Buy’ rating in the mid cap value space and are thus expected to outperform in the months to come (read: all theTop Ranked ETFs).

While all these top ranked ETFs are likely to outperform, the following three funds could be good choices to tap into the space. This trio has enjoyed a strong momentum in the year-to-date period, and has potentially superior weighting methodologies which could allow it to continue leading the mid cap value space in the months ahead.

iShares Morningstar Mid-Cap Value ETF (NYSEARCA:JKI)

This underappreciated ETF offers exposure to the mid cap value sector of the U.S. equity market, by tracking the Morningstar Mid Value Index. Holding 196 stocks in its basket, the fund provides a nice balance across each security and prevents heavy concentration. None of the securities holds more than 1.51% of assets. In terms of sectors, financials take the top spot at roughly one-fourth of the total, followed by industrials (13.50%) and utilities (12.37%).

The product has amassed $156.9 million in its asset base while volume is light, suggesting that bid/ask spreads are relatively wide and that total cost will come in much higher than the 30 bps expense ratio. The ETF returned nearly 38% so far this year.

PowerShares Fundamental Pure Mid Value Fund (NYSEARCA:PXMV)

This fund follows the RAFI Fundamental Mid Value Index and holds a large basket of 237 securities in its portfolio. PXMV looks unpopular with AUM of less than $39 million while trades in small volumes. Expense ratio came in at 0.39% (read: Top Ranked Mid Cap ETF in Focus: PXMV).

Like JKI, the product is widely spread out across each sector and security, as each security makes up for less than 1.3% of total assets. From a sector perspective, financials occupy the top position at 22.05% while consumer discretionary, industrials and information technology round off to the next three spots. The ETF added about 36% in the year-to-date time frame.

WisdomTree MidCap Earnings Fund (NYSEARCA:EZM)

For a slight ‘active’ choice, investors could consider EZM for quality exposure. The ETF tracks the WisdomTree MidCap Earnings Index, which measures the performance of the stocks that generate earnings in the mid cap universe. This result in a robust portfolio of 607 stocks, giving investors wide exposure across the cap level.

The fund does a great job of spreading out assets across individual securities as no one company accounts for more than 1.6% of assets. From a sector look, financials and industrials account for the largest share of 21.58% and 20.25%, respectively. Consumer discretionary and information technology receive double-digit allocations as well.

The product has managed assets about $391 million so far in the year while sees moderate volume. The fund charges 38 bps in fees per year from investors and is up over 35% year-to-date.

Bottom Line

To sum up, mid cap value funds offer higher returns with low risk amid volatile markets. Given this, investors shouldn’t forget the mid cap space and should take a closer look at a few of the top ranked ETFs in this sector for excellent exposure and some more outperformance in the months ahead.

This article is brought to you courtesy of Eric Dutram.


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