Investors have embraced U.S. midcap equity ETFs in 2024, with the investment style gathering $19 billion of new money as of early November. This cash haul was more than the $17 billion brought in by small-cap equities. We're impressed; we find midcaps are often left out of an asset allocation filled with large and small caps.
Seven midcap ETFs have garnered over $500 million of net inflows thus far in 2024. While four of them are market-cap weighted index-based ETFs, three are smart beta ETFs. The latter ETFs are constructed based on fundamentals and/or valuation metrics. Midcap companies tend to have stronger growth prospects than large caps and also have stronger financial profiles than small caps.
Leading Midcap ETFs Are Not the Same
The iShares Core S&P Mid-Cap ETF (IJH) and the Vanguard Mid-Cap ETF (VO) are the midcap ETFs with the most assets. Not surprisingly, they are also the two most popular ETFs in the style this year. IJH and VO had net inflows of $5.8 billion and $3.1 billion, respectively. While the expense ratios are nearly identical, VO’s 14.3% year-to-date total return, as of Nov. 4, was 100 basis points stronger than IJH. The Vanguard ETF owns companies with higher market capitalizations than the iShares ETF.
Invesco Having Success With Single Factor Mid-Cap ETFs
Heading into 2024, the Invesco S&P MidCap Quality ETF (XMHQ) was a lesser-known midcap product. However, the Invesco fund has garnered strong interest, pulling in $3 billion of new money to more than double in size. Like the Invesco S&P 500 Quality ETF (SPHQ), XMHQ owns companies in a broader S&P index that have strong fundamentals based on three metrics. Those are return on equity, accruals and financial leverage.
The fund's 17% gain thus far in 2024 was 400 basis points stronger than IJH. The Invesco ETF recently had 37% of assets in industrials stocks, with double-digit stakes also in consumer discretionary, financials and industrials. Lincoln Electric, Owens-Corning, and Williams-Sonoma were some of its largest holdings.
The Invesco S&P MidCap Momentum ETF (XMMO) was also an under-the-radar ETF to start the year. However, aided by nearly $1 billion of net inflows, XMMO is now a $2.7 billion fund. The ETF owns 79 stocks with the strongest price momentum characteristics. XMMO is almost as big as its large-cap sibling, the Invesco S&P 500 Momentum ETF (SPMO).
