There are a lot of mid-cap value ETFs. We show you the best mid-cap value ETF and show you the 6 important requirements for picking a good mid-cap value ETF.
After having researched 14 mid-cap value ETFs we have found what we consider the best ETF suited for most people.
So what is the best mid-cap value ETF?
The best mid-cap value ETF for most people is: Vanguard Mid-Cap Value ETF. Symbol: VOE
There are other mid-cap value ETFs available, but there is really only a handful that are worth considering.
- Why you should choose Vanguard mid-cap value ETF
- What is the historical return of mid-cap value?
- What is mid-cap value?
- What is marketcap?
- What are value stocks?
- What are some of the holdings of the mid cap value?
- What other midcap value ETFs should you consider?
- How do I know if an ETF is a mid-cap value ETF?
- Why should I buy US Mid-cap value?
- How do I build a great portfolio with ETFs?
- Related questions
Why you should choose Vanguard mid-cap value ETF
When you pick a good ETF you need to first look at 6 things:
- The expense ratio for the ETF needs to be low. The expense ratio is always expressed as a percentage. The percentage denotes how much of your total investment in that ETF that you need to pay the provider of the ETF. This should be below 0.30% and preferrably lower than that.
- The ETF should invest passively. It should follow a well-established index from a reputable provider like MSCI or FTSE. Passivly managed funds typically beats actively managed funds on expenses and investment returns.
- The ETF needs to be highly liquid. This means that the difference between the buy and sell price (bid/ask) for the ETF is small. This is called the price spread.
- The ETF needs to have large amount of assets under management. This is abbreviated as AUM. This guarantees that the ETF doesn’t close in the near future and is also an indicator of low price spreads.
- The ETF needs to follow its index without a large tracking error. If the ETF has a large tracking error in comparison to its index we are not getting what we are paying for. A large tracking error is also an indication that the ETF is executing poorly on its replication of the index that it is tracking which is not desireable.
- The index that the ETF tracks need to represent and replicate the desired asset class with high fidelity. This means we expect a large-cap growth ETF to contain only large-cap growth stocks and continue to do so without style drift.
When you are comparing the six requirements to each other the most important thing to focus on is the expense ratio, as that is the most reliable indicator of how well the ETF will perform in the future.
Vanguard Mid-Cap Value ETF fulfills all of the above requirements. It is cheap. It tracks a mid-cap value index with little tracking error. It is highly liquid with a large AUM.
What is the historical return of mid-cap value?
Here is the historical return of the mid-cap value asset class.
|Periode||Mid-cap value return (%)|
|CAGR since 1989||11.22|
|CAGR 10 years||9.96|
|CAGR 5 years||7.71|
|CAGR 3 years||2.43|
Here is how you read the table.
CAGR stands for Compound Annual Growth Rate. It is the rate of the return with included interest on interest. It includes reinvestment of dividends.
CAGR Since 1989 is the return since 1989. This is the year which we have chosen, as we have had reliable data for most asset classes since 1989.
CAGR 10 years is the return for the past 10 years, not including the current year.
CAGR 5 years is the return for the past 5 years, not including the current year.
CAGR 3 years is the return for the past 3 years, not including the current year.
Last year is the return for the asset class last year.
Return YTD is the Year To Date return for the asset class.
What is mid-cap value?
Mid-cap value includes companies between $2 billion and $10 billion in market cap size and which are labeled as value stocks. Value stocks are those stocks that score lower than other stocks on valuation metrics such as price to earnings (P/E).
There are two parts behind the mid-cap value designation. First, there is the mid-cap part, and secondly the value part.
The first part is the mid-cap which says something about the size (in value) of the company.
The second part of the mid-cap value is the style part and says something about which types of stocks are included.
Let’s break down these two parts.
What is marketcap?
Stocks are divided by their market cap. You calculate the market cap size of a company by taking the price of one share and multiplying it with the number of shares the company has issued.
The other market cap categories are:
- Small-cap companies have a market capitalization between $300 million and $2 billion.
- Mid-cap companies have a market capitalization between $2 billion and $10 billion.
- Large-cap companies have a market capitalization between $10 billion and $200 billion.
In addition to these three market cap segments we often see two other markets cap segmentations:
- Micro-cap companies have a market capitalization between $50 million and $300 million.
- Mega-cap companies have a market capitalization of above $200 billion.
Mega-cap companies are well-known companies such as Apple and Microsoft.
Large-cap companies are also mostly well-know such as Disney, CVS Health, and Wells Fargo
Mid-cap companies are less known but they include companies like Five Below, GoDaddy, and Graco.
What are value stocks?
The second part of the mid-cap value is the style part and says something about which types of stocks are included.
All stocks can be categorized as a value stock or a growth stock.
This is decided by sorting all the stocks by their fundamentals, such as price to earnings (P/E), dividends, earnings, or sales.
The top half of all stocks in the sorting are growth stocks. They could be sorted by P/E. So the top half is filled with high P/E companies. Companies that sport a high P/E are usually high-growth companies like technology stocks and biotech stocks but there could be other kinds of companies.
The bottom half is the value stocks. They have low P/Es. They are typically low-growth companies, mature and stable companies, or companies with negative news.
Value stocks have in the past outperformed growth stocks. In the last 10-15 years value has lagged growth, however.
We usually divide the style into three categories
Value contains value stocks, growth contains growth stocks, and blend contains all the stocks. Blend is the sum of all value and growth stocks
There are other styles of investing but growth and value are the two big ones. Examples include smart-beta investing, oftentimes referred to as factor-investing.
Our pick for the best ETF Mid-cap value is the Vanguard Mid-Cap Value ETF. It follows the CRSP US Mid Cap Value Index which uses the CRSP method for assigning stocks to the value or growth category. The CRSP methodology take the following into account when assigning value or growth to a stock:
- Book-to-Price Ratio (BP)
- Future Earnings-to-Price Ratio (FEP)
- Historical Earnings-to-Price Ratio (HEP)
- Dividend-to-Price Ratio (DP)
- Sales-to-Price Ratio (SP)
- Future Long-term Growth in Earnings Per Share (FLGE)
- Future Short-term Growth in Earnings Per Share (FSGE)
- Three-year Historical Growth in Earnings Per Share (HGE)
- Three-year Historical Growth in Sales Per Share (HGS)
- Current Investment-to-Assets Ratio (INV)
- Return on Assets (ROA)
You can read about CRSP methodology here.
What are some of the holdings of the mid cap value?
When you buy the Vanguard Mid-Cap Value ETF you become a part-owner of over 200 companies.
The companies you become an owner of come from all parts of the economy. Below you can see a snapshot of the sectors in which the companies operate. Financial services is the largest sector followed by real estate, then consumer cyclical.
Below you can see some of the companies that the Vanguard Mid-Cap Value ETF contains.
These represent the 10 biggest holdings as of 2021.
|1||Carrier Global Corp.|
|2||Motorola Solutions Inc.|
|3||Discover Financial Services|
|4||International Flavors & Fragrances Inc.|
|7||AvalonBay Communities Inc.|
|10||DR Horton Inc.|
What other midcap value ETFs should you consider?
There are many mid-cap value ETFs. In addition to the requirements listed above, you need to keep a keen eye on the index that the ETF used for tracking.
It is typically best to stick with established index providers such as MSCI, S&P, FTSE, Morningstar, and CRSP.
In the table below we have listed what we consider some good alternatives to Vanguard Mid-Cap Value ETF.
|Vanguard Mid-Cap Value ETF||CRSP US Mid Cap Value Index||0.07||VOE||Vanguard|
|Nuveen ESG Mid-Cap Value ETF||TIAA ESG USA Mid-Cap Value Index||0.4||NUMV||Nuveen|
|iShares Russell Mid-Cap Value ETF||Russell MidCap Value Index||0.23||IWS||iShares|
|SPDR S&P 400 Mid Cap Value ETF||S&P MidCap 400 Value Index||0.15||MDYV||SPDR|
How do I know if an ETF is a mid-cap value ETF?
When you select an ETF to cover the mid-cap value asset class you can clearly see which style the ETF uses by the name of the ETF.
Here are two examples:
• Vanguard Mid-Cap Value ETF (VOE)
• iShares Russell Mid-Cap Value ETF (IWS)
As you can see the ETFs clearly state the investing strategy of the ETF.
In addition to this, you need to examine the index that the ETF is tracking. Most index providers disclose their indexing methodology on a general level and even on a practical specific level for particular assets classes.
The large index providers have money on the line in providing the best indices for any one asset class. We can typically rest assured that their methodology is far superior to any second-guessing that we as private investors may come up with.
Why should I buy US Mid-cap value?
US Mid-caps have been the best performing market for the past 10 years. Value has underperformed for the past 10 years. Value has however outperformed growth historically so a reversion to the mean is possible in future years.
How do I build a great portfolio with ETFs?
A high-performing portfolio is constructed by combining different asset classes. If you just want the market return you should buy one ETF (VTI). You don’t need anything else.
If you want a shot at outperforming the market you need to apply the following recipe to your investing strategy.
- Start with adding a broad US based stock ETF.
- Then, add exposure to international stocks. This is usually divided into developed countries and emerging markets. Developed markets include Europe, Canada, Japan, Australia and small parts of Asia. Emerging markets include Eastern Europe, Africa, most of Asia and Southamerica.
- Then tilt (overweight) your portfolio towards high performing asset classes like value and small-cap. Value stocks and smaller stocks have historically outpaced larger growth stocks. This has not been true in the past 10 years however.
If you want the best performing, pre-made, and benchmarked portfolios that we have tested then you should consider our premium service that shows you how to construct the best portfolios that we have benchmarked.
What is Mid Cap Growth?
Mid-cap growth is companies with a market cap between $2 billion and $10 billion that have high P/E, P/S, or P/P values. They are said to be more expensive than mid-cap value companies because they are expected to grow more rapidly.
Are mid-caps a good investment?
In the past 10 years, mid-caps have been a great investment. Mid-caps performance has been on par with the broader market. This is because mid-cap companies are more agile than bigger companies and can therefore react more quickly to opportunities. Mid-caps are at the same time more robust financially than small-caps.
Which is better mid-cap or small-cap?
For the past 10 years, small caps have outpaced mid-caps by a very small margin. For the past 30 years, however, mid-caps have outpaced small-caps by more than one percent per year making mid-caps the better investment in that period.