- The U.S. Mid Cap Blend asset class has been one of the most profitable equity asset classes for over 46 years, outperforming the S&P 500 by 1.62% CAGR.
- The oldest available Mid Cap Blend ETF has outperformed an S&P 500 index fund by 1.72% CAGR over the last 23 years
- There are currently 41 ETFs available in the Mid Cap Blend Morningstar category. Sixteen of these ETFs have been available for 10 years or longer
- Nine of these older ETFs have outperformed an S&P 500 index fund since their inception dates
- Most ETFs in this asset class offer massive diversification in size of companies, broad sector exposure, and include both value & growth stocks
- The middle of the stock market might just be the best place to invest
U.S. Mid Cap Blend vs U.S. Large Cap Blend (aka S&P 500): January 1972 – December 2018
Source: https://www.portfoliovisualizer.com/
The U.S. Mid Cap Blend asset class has been one the best performing equity asset classes for over 46 years. The persistent outperformance of this asset class makes it ideal for a core position in an equity portfolio. In the example above, an investment in mid cap equities would have grown to more than twice that of an investment in an S&P 500 fund. Additionally, this asset class was able to produce these returns with only slightly higher volatility. Seeing that this has been a good asset class to be invested in long-term, let’s look at how ETFs in this category have performed during the last few decades.
MDY vs S&P 500 index fund: September 1995 – December 2018
Source: https://www.portfoliovisualizer.com/
MDY vs SPY: May 9, 1995 – January 20, 2019
Source: https://www.koyfin.com/home
The oldest and one of the largest ETFs in the U.S. Mid Cap Blend asset class is the SPDR® S&P MIDCAP 400® ETF (MDY). MDY’s inception date was May 4, 1995. Since then, this ETF has produced 1.72% higher compound annual growth rate (CAGR) than an S&P 500 index fund. This is significant and worth considering when building an equity portfolio.
Morningstar currently shows 41 ETFs available in the Mid-Cap Blend category. Sixteen of these funds are 10 years old or older. I have ranked all sixteen of these ETFs by comparing them head-to-head with the back-testing tools at Portfolio Visualizer and Koyfin. The long-term returns of the top 5 funds were so close that the rankings differ depending on whether you back-test month-to-month or day-to-day. So, if this asset class interests you, you may want to decide which ETF you want to invest in based upon expense ratios and/or commission costs at your brokerage. I did not consider investor suitability, quality, valuations, AUM, diversification, tax efficiency or any other factor than total returns when making this rankings list.
Source: https://www.morningstar.com/
I generally focus on the top 4 ETFs when creating articles on an asset class’ long-term performance. But, because the top 5 were very close in total returns, the following charts will depict the total returns of the top 5 Mid Cap Blend funds. Due to the limitations of Portfolio Visualizer, that back-test only includes EZM, CZA, IJH and VO. Koyfin produces results that are based on the inception date through the current date, rather than month-to-month returns. Therefore, I have attached Koyfin charts comparing all 5 of the top ETFs head-to-head in one chart and separate charts for the individual ETFs with the ETF nearest its’ performance.
EZM vs CZA vs IJH vs VO: May 2007 – December 2018
Source: https://www.portfoliovisualizer.com/
CZA vs EZM vs VO vs VXF vs IJH vs SPY: April 3, 2007 – January 20, 2019
Source: https://www.koyfin.com/home
CZA vs EZM: April 3, 2007 – January 20, 2019
Source: https://www.koyfin.com/home
EZM vs VO: February 26, 2007 – January 20, 2019
Source: https://www.koyfin.com/home
VO vs VXF: January 30, 2004 – January 20, 2019
Source: https://www.koyfin.com/home
VXF vs IJH: January 4, 2002 – January 20, 2019
Source: https://www.koyfin.com/home
Now that we’ve seen the relative past performance of these top 5 Mid Cap Blend ETFs, let’s turn our attention to what each one offers. Investors should look at the prospectus before investing in any fund, but the product summaries on the fund family’s websites will give us a synopsis of how these ETFs are managed.
CZA – The Invesco Zacks Mid-Cap ETF (Fund) is based on the Zacks Mid-Cap Core Index (Index). The Fund will invest at least 90% of its total assets in securities that comprise the Index. The Index selects securities from a universe of mid-capitalization securities, including master limited partnerships (MLPs) and American depositary receipts (ADRs)and business development companies (BDCs). The Fund and the Index are rebalanced quarterly. (BEST LONG-TERM PERFORMANCE. LOWEST VOLATILITY)
EZM – WisdomTree U.S. MidCap Earnings Fund* seeks to track the investment results of earnings-generating mid-cap companies in the U.S. equity market. Gain broad U.S. mid cap equity exposure to profitable companies. Use to complement or replace mid cap active and passive strategies with the potential for more favorable valuations. (BEST 10-YEAR & SINGLE-YEAR PERFORMANCE, LOWEST P/E & P/B RATIOS)
VO – Vanguard Mid-Cap ETF. Seeks to track the performance of the CRSP US Mid Cap Index, which measures the investment return of mid-capitalization stocks. Provides a convenient way to match the performance of a diversified group of medium-size companies. Follows a passively managed, full-replication approach. (BEST DIVIDEND, LOWEST EXPENSE RATIO)
VXF – Vanguard Extended Market ETF. Seeks to track the performance of a benchmark index that measures the investment return of stocks from small and midsize companies. Provides a convenient way to match the performance of virtually all regularly traded U.S. stocks except those in the S&P 500 Index. Passively managed, using index sampling techniques. (MOST DIVERSIFIED)
IJH – The iShares Core S&P Mid-Cap ETF seeks to track the investment results of an index composed of mid-capitalization U.S. equities. Exposure to U.S. mid-cap stocks. Low cost and tax efficient. Use at the core of your portfolio to seek long-term growth. (BEST 15-YEAR PERFORMANCE, LARGEST AUM, OLDEST)
In the investing world, there are no certainties, and we all know the mantra “past performance is no guarantee of future returns”. But, realistically, what else do we have to go on? The predictions of the talking heads in the financial news? I think not. The persistent long-term performance of the U.S. Mid Cap Blend asset class makes it a “no-brainer” to add as a core position in an equity portfolio. There is a good reason that this asset class continuously performs well. Look at it’s location in the Morningstar Equity Style Box. Yep, it’s right there in the middle. This is an excellent place to find great investments. Large value companies are coming in that have had their valuations lowered, smaller growth companies are evolving into mid cap companies, and some mid-sized companies are right-sized and stay in the mid cap category for extended periods of time. This ebb and flow makes for a near perfect balance of some of the best publicly traded companies in the United State. In other words, this asset class is at the core of the American economy and therefore is an ideal core holding in an equity portfolio. Personally, if I could only invest in one asset class, it would be in the U.S. Mid Cap Blend category. Fortunately, I’m not limited to just one asset class, but I did make a conscious decision to only invest in one fund in my employer’s 401k, a mid cap blend index fund. Yes, I like this asset class that much, and I think you might also.
Thank you for taking time to read this article. If you found it useful, please share it with a friend.
Respectfully yours, Micah McDonald, aka the Deep Value ETF Accumulator
Disclosure: We own shares of EZM and we intend to buy more shares in the future. I am not a professional investment advisor. Please perform your own due diligence or seek assistance from a Registered Investment Advisor prior to investing in any fund mentioned in this article.
Previous Deep Value ETF Accumulator article on the U.S. Mid Cap Blend asset class: MARCH 5, 2018 Best Long-Term Performance U.S. Mid Cap Blend ETFs 1.1