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Mid-Cap Growth -- The Single Best-Performing Corner of
the Market Over the Past Five Years |
Published: November 19,
2007
As an asset
class, it's easy to understand the appeal of mid-cap stocks. These
companies, which generally sport market caps ranging from $2 billion to
as much as $10 billion, are typically faster-growing than the market's
giants. At the same time, they are also more established than smaller
firms and thus provide more stable and predictable earnings visibility.
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Vanguard
Mid-Cap ETF (VO)
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Assets:
$1.3 Billion
Expense Ratio: 0.13%
Avg. P/E: 17
3-Yr. Annual Return: +12.8%
ETF Composite Score: 33 ("A-") |
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Top Five
Holdings:
1.) NVIDIA
Corp.
2.) Hilton
Hotels Corp.
3.) Ameriprise
Financial, Inc.
4.) Smith International, Inc.
5.) T.
Rowe Price Group, Inc.
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In
short, mid-caps can offer greater upside potential than large-caps and
less volatility than small-caps. According to Morningstar, mid-cap
growth has been the single best performing corner of the domestic market
over the past five years -- raking in average annual returns in excess
of +19%.
Considering the cyclicality of the markets and the relative valuation
against other asset classes, now may not be the best time to overweight
this particular group. However, long-term investors looking to build a
well-balanced portfolio would be wise to include some exposure to
mid-cap stocks.
And when it comes to selecting an actual building block to represent
this group, I think Vanguard Mid-Cap ETF (AMEX: VO, $75.93) is a great
option.
Tracking the MSCI U.S. Mid-Cap 450 Index, the fund should appeal to
one-stop shoppers. The portfolio straddles the border between growth and
value and covers a diversified swath of more than 400 stocks -- and its
top ten holdings only represent a miniscule 5.8% of assets. Shareholders
will have a stake in companies like graphics chip maker Nvidia (Nasdaq:
NVDA), money manager T. Rowe Price (Nasdaq: TROW) and offshore oil &
gas driller Noble (NYSE: NE).
Overall, the portfolio carries an average earnings growth rate north of
+20% and is heavily weighted towards the financial, consumer
discretionary, and information technology sectors. And, of course, the
hallmark of any Vanguard fund is a low expense ratio -- VO charges a
razor-thin 0.13% of assets.
As you might expect, that built-in advantage gives the fund a
considerable head-start against competitors. And over the past three
years, VO has delivered average annual gains of +12.8% -- outpacing the
S&P 500, as well as 99% of its rivals in the mid-cap blend category.
With all this in mind, I will be monitoring the fund closely as a
possible addition to my "Buy-and-Hold" Portfolio. This model
portfolio is available exclusively to paid subscribers of my premium
exchange-traded funds (ETF) newsletter -- The
ETF Authority.
Good investing!
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Nathan Slaughter
Editor
The ETF Authority, Half-Priced Stocks
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| To receive
in-depth guidance on today's leading exchange-traded funds (ETFs), plus
a proprietary ranking system designed to uncover today's most
profitable funds, please subscribe to
Nathan Slaughter's premium ETF investing newsletter -- The
ETF Authority |
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Income Security
of the Month
Our "Income Security of the Month" for July 2008 invests in
a fast-growing overseas market that doesn't get much exposure in the
mainstream financial press. And although it typically makes enormous
annual dividend payments -- it has paid an average dividend of 24.9%
per year over the past five years -- this fund is perhaps most
appealing for its total return potential. Specifically, the fund has
delivered total returns of +263.9% since 2003, and
it ranks in the top 10% of its category over the past decade.
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Top
10 Stocks for 2008!
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Ten Stocks for 2008. |
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