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Midcap growth stocks have outperformed their large-cap counterparts.
Midcap growth stocks have quietly outperformed both the S&P 500 Growth Index (NYSE:VOOG) and the Nasdaq this year.
The Russell Midcap Growth Index is up about 10.1% YTD and 25.7% over the past one-year period. By comparison, the S&P 500 Growth index, which tracks large cap growth stocks, is up 8.1% YTD and 15.3% over the past 12 months. And the Nasdaq 100, which tracks the largest tech and growth stocks, is up about 8.7% YTD and 11.7% over the past year.
With large cap tech and growth stocks mostly overvalued, investors may be better served right now tapping into the fast-growing midcap stocks, many of which are the tech giants and mega cap monsters of tomorrow.
A great way to do that is through exchange-traded funds (ETFs), which track the indexes that include the best midcap growth names. Here are the top 3 midcap growth ETFs to consider.
iShares Russell Midcap Growth ETF
The iShares Russell 1000 ETF (NYSE:IWB) tracks the Russell Midcap Growth index, which consists of stocks within the Russell Midcap Index that exhibit growth characteristics. Specifically, it contains midcap stocks with higher price-to-book ratios, higher sales-per-share historical growth, and higher forecasted growth relative to other stocks in the larger Russell Midcap Index. It also has caps in place to ensure that the portfolio is not too concentrated.
The portfolio is mostly made up of consumer discretionary (22%), industrial (19%), and technology (18%) stocks.
The top three holdings are cruise line leader Royal Caribbean (NYSE:RCL) at 2.8%, aerospace firm Howmet at 2.4%, and energy company Vistra at 2.1%.
The performance has been strong, with the ETF up 8.6% YTD and 24.9% over the past one-year. Further, it has average annualized returns of 21.2% over the past three years, 12.4% over the past five, and 11.9% over the last 10 years. Its expense ratio is 0.23%.
Vanguard Midcap Growth ETF
The Vanguard Mid-Cap Growth Index Fund ETF Shares (NYSE:VOT) has been another strong performer in the midcap growth space. It tracks the CRSP US Mid Cap Growth Index and is more concentrated as this ETF holds 133 stocks. Industrials make up 22% of the fund, followed by technology stocks at 20% and consumer discretionary names at 17%.
The top three holdings are tech company Amphenol (NYSE:APH) at 2.8%, Constellation Energy (NASDAQ:CEG) at 2.5%, and aerospace firm TransDigm at 2.0%.
This ETF has returned 11.7% YTD and 23.0% over the past year. It has average annualized returns of 18.4% over the past three years, 12.2% over the past five, and 11.2% over the last 10 years. It does have a lower expense ratio than the iShares ETF at 0.07%, so less is taken out in fees.
Invesco S&P Midcap Momentum ETF
The Invesco S&P MidCap Momentum ETF (NYSE:XMMO) tracks the S&P 400 Momentum Index. The S&P 400 is a midcap index that is made up of the next largest 400 companies after the S&P 500. The S&P 400 Momentum Index, and this ETF, is composed of about 80 securities in the S&P Midcap 400 Index that have the highest “momentum scores.” Momentum scores are computed by measuring the upward price movements of each security as compared to other eligible stocks within the index.
This ETF is dominated by financials, which make up 28% of the ETF. Some 20% of it is made up of industrials followed by 12% in consumer staples.
The top three holdings are financial firm International Brokers Group at 5.1%, construction company EMCOR Group at 3.7%, and Sprouts Farmers (NASDAQ:SFM) Market at 3.3%.
This fund has returned 4.6% YTD and 14.1% over the past 12 months. However, it does have better longer term returns than the others, with a three-year average annualized return of 23.3% and a five-year average annualized return of 18.1%. It does not have a 10-year track record yet. It also has the highest expense ratio of the three at 0.39%.
All three of these ETFs invest in different midcap ETFs, so each is nuanced, yet they all have strong, market-beating returns. You wouldn’t go wrong investing in any of them.