Sector Concentration of Top Mid-Cap ETFs
The mid-cap segment of the market comprises the companies that find themselves in the middle of the business cycle. More specifically, these companies tend to have market capitalizations between $2 billion and $10 billion, and they have grown beyond the typical types of risk that are associated with their smaller-cap counter parts.
From an investor’s standpoint, the companies within this segment tend to be underfollowed despite relatively strong performance compared to other segments. In this article, we look at the sector composition of the mid-cap market by analyzing key benchmarks and exchange-traded funds (ETFs) that are used to track the performance of this group. After reading this article, investors will be able to better understand the nuance between the different levels of sector exposure and how these details could affect the long-term returns.
- Top sectors within popular mid-cap ETFs include industrials, information technology, consumer discretionary, financials, and healthcare.
- There are slight differences between sector concentration of mid-cap ETFs. Much of the difference can be explained based on what underlying index the fund is designed to track.
- The differences in ETF sector concentration are worth considering when adding mid-caps to an existing portfolio.
According to S&P Dow Jones Indices, the S&P MidCap 400 has beaten the S&P 500 and the S&P SmallCap 600 by an annualized rate of 2.03% and 0.92%, respectively between Dec. 30, 1994, and May 31, 2019. This type of strong performance often means that investors know that they want to gain exposure to mid-caps, but they often don’t know where to start. Luckily, there are many different ETFs available in the public market that are designed to track the mid-cap segment. The availability of many different mid-cap ETFs also means that there are a lot of nuances across the funds. Some funds offer exposure to different styles and factors such as growth, value, or even niches such as momentum while others offer a diversified blend.
Within the funds that offer broader coverage, which tend to be the most popular based on total net assets, the differences tend to be even more subtle, with sector breakdowns varying by only a few percentage points. Depending on one’s investment style, strategy, and perspective, these differences can affect long-term returns. In the sections below, we will look at the subtleties between the sector breakdown of the most popular mid-cap indexes and mid-cap-focused ETFs so that investors get a sense of what sectors contribute to mid-cap performance.
S&P Midcap 400 Index
According to S&P Dow Jones Indices, as of March 31, 2022, the sector breakdown of the index was tilted toward sectors such as industrials, financials, information technology, and consumer discretionary. The specific breakdown can be viewed in the list below. The heavier weighting toward sectors such as industrials, financials, information technology, consumer discretionary, and healthcare is typical for the mid-cap segment and for the funds and indexes discussed throughout the article.
Investors who are interested in gaining exposure to mid-caps often tend to focus on these core sectors and then supplement with others such as real estate, materials, energy, utilities, and consumer staples. Some U.S.-based ETFs that are linked to the S&P Midcap 400 Index include the iShares Core S&P Mid-Cap ETF (IJH), ProShares Ultra MidCap400 (MVV), SPDR Portfolio S&P 400 Mid Cap ETF (SPMD), and Vanguard S&P Mid-Cap 400 ETF (IVOO).
Sector Breakdown of the S&P 400 Index
As of March 31, 2022
Industrials – 18.7%
Financials – 14.2%
Information Technology – 14.1%
Consumer Discretionary – 14.0%
Real Estate – 10.1%
Health Care – 9.2%
Materials – 7.4%
Consumer Staples – 3.6%
Energy – 3.6%
Utilities – 3.4%
Communication Services – 1.7%
CRSP U.S. Mid Cap Index
The CRSP U.S. Mid Cap Index targets the inclusion of the U.S. companies that fall between 70% and 85% of investable market capitalization. The most popular mid-cap ETF that tracks the CRSP U.S. Mid Cap Index is the Vanguard Mid-Cap ETF (VO), which we will look at more closely below. As you will see in the sector breakdown, the CRSP U.S. Mid Cap Index has slightly higher exposure to technology, healthcare, telecommunications.
Sector Breakdown of CRSP U.S. Mid Cap Index
As of March. 31, 2022
Information Technology – 16.39%
Industrials – 14.22%
Consumer Discretionary – 13.76%
Financials – 11.59%
Healthcare – 11.03%
Real Estate – 9.69%
Energy – 6.41%
Utilities – 6.40%
Consumer Staples – 4.71%
Basic Materials – 3.85%
Telecommunications – 1.95%
When comparing indexes and ETFs, it is also important to note that the breakdown of top holdings or sectors represents a snapshot in time and will change as the prices and composition of the components fluctuate.
iShares Core S&P Mid-Cap ETF
As of April 14, 2022, the iShares Core S&P Mid-Cap ETF (IJH) was the largest mid-cap ETF with total net assets of $64.5 billion. The fund tracks the S&P MidCap 400 Index and as a result has strong exposure to sectors such as industrials, financials, consumer discretionary, information technology, and healthcare. The fund carries an expense ratio of 0.05% and had 403 holdings excluding its cash positions and derivatives such as futures and currency futures.
Sector Breakdown of the iShares Core S&P Mid-Cap ETF
As of April 13, 2022
Industrials – 18.19%
Consumer Discretionary – 14.20%
Financials – 13.99%
Information Technology – 13.70%
Health Care – 9.41%
Real Estate – 9.41%
Materials – 7.69%
Energy – 4.14%
Consumer Staples – 3.75%
Utilities – 3.46%
Communication – 1.75%
Cash and/or Derivatives – 0.31%
Vanguard Mid-Cap ETF
With total net assets of approximately $53.2 billion as of April 14, 2022, the Vanguard Mid-Cap ETF (VO) is the second largest mid-cap ETF in the U.S. market. The fund comprises 370 holdings and is designed to track the performance of the CRSP U.S. Mid Cap Index.
Sector Breakdown of the Vanguard Mid-Cap ETF
As of Feb. 28, 2022
Information Technology – 16.80%
Industrials – 14.40%
Consumer Discretionary – 14.30%
Financials – 12.00%
Healthcare – 11.10%
Real Estate – 9.30%
Energy – 6.00%
Utilities – 6.00%
Consumer Staples – 4.50%
Basic Materials – 3.60%
Telecommunications – 2.00%
iShares Russell Mid-Cap ETF
The iShares Russell Mid-Cap ETF (IWR) has net assets of nearly $30 billion as of April 14, 2022 and tracks the performance of the Russell MidCap Index. The fund has an expense ratio of 0.19% and comprises 824 holdings. The relatively large number of holdings provides investors with a broader picture of the mid-cap market segment than the other ETFs in the category. Based on the sector breakdown shown in the list below, you’ll find that the breakdown, which is very similar to the others with concentration toward sectors such as information technology, industrials, financials, healthcare, and consumer discretionary.
Sector Breakdown of the iShares Russell Mid-Cap ETF
As of April 13, 2022
Information Technology – 17.29%
Industrials – 14.03%
Financials – 12.49%
Consumer Discretionary – 11.34%
Health Care – 10.93%
Real Estate – 8.55%
Materials – 6.19%
Energy – 5.90%
Utilities – 5.37%
Consumer Staples – 3.98%
Communication – 3.79%
Cash and/or Derivatives – 0.13%
SPDR® S&P MIDCAP 400® ETF Trust
As the name of the ETF suggests, the SPDR® S&P MIDCAP 400® ETF Trust (MDY) is designed to track the S&P 400 Index. The fund has approximately $19.6 billion in assets under management (AUM) as of April 13, 2022 and carries a gross expense ratio of 0.23%. The fund comprises 400 holdings with a weighted average market cap of $7.2 billion.
Sector Breadown of the SPDR® S&P MIDCAP 400® ETF Trust
As of April 13, 2022
Industrials – 18.26%
Consumer Discretionary – 14.24%
Financials – 14.03%
Information Technology – 13.74%
Health Care – 9.44%
Real Estate – 9.44%
Materials – 7.71%
Energy – 4.15%
Consumer Staples – 3.76%
Utilities – 3.47%
Communication Services – 1.75%
Vanguard Mid-Cap Value ETF
Each of the ETFs mentioned this article so far have been composed of a blend of different types of mid-cap companies. The Vanguard Mid-Cap Value ETF (VOE) is geared toward investors who look to filter down the segment through the lens of a value investor. Fundamentally, the fund comprises 204 holdings and has total net assets of $30.2 billion as of March 31, 2022. Based on the sector weights shown in the list below, you’ll find that mid-cap value investors are drawn toward financials, consumer discretionary, and real estate more so than those interested in the other funds.
Sector Breakdown of the Vanguard Mid-Cap Value ETF
As of Feb. 28, 2022
Financials – 17.27%
Consumer Discretionary – 14.64%
Real Estate – 12.21%
Industrials – 11.63%
Utilities – 10.67%
Consumer Staples – 7.57%
Energy – 7.02%
Health Care – 5.80%
Basic Materials – 5.76%
Technology – 5.65%
Telecommunications – 1.78%
The Bottom Line
Investors have many options to choose from when it comes to mid-cap ETFs. There are some subtle differences between the sector exposure between the various funds, which will affect long-term returns and overall portfolio diversification and could influence what type of fund might be best for a given portfolio. When analyzing the sector breakdown of the mid-cap segment, it is apparent that the bulk of the concentration goes to industrials, information technology, consumer discretionary, financials, and healthcare.
What does sector rotation mean?
Sector rotation is the movement of money invested in stocks from one industry to another as investors and traders anticipate the next stage of the economic cycle. Investors often utilize ETFs as a tool for gaining exposure to the various market sectors.
What is the industrials sector?
The industrials sector comprises companies that specialize in converting unfinished goods into products that are then in turn used to manufacture other goods or services. As the nature of the businesses implies, the group can tend to act as a good gauge of overall economic conditions.
What is a sector fund?
A sector fund is an investment fund that invests solely in businesses that operate in a particular industry or sector of the economy. Sector ETFs are available for each Global Industry Classification Standard (GICS) sector, as well as several other ad-hoc and unique sectors.