Over the past year or so, large technology companies such as the Big Seven have led the rise in US stocks and have become a unique focus of the market. However, the risk of the large market index, which has been hampered by fanatical gains, has gradually come to light — the market capitalization of the top ten US stocks has reached 33% of the total market value of the S&P 500 index. At the peak of the tech net bubble in 2000, this ratio was only 27%. The index concentration and concentration trend are currently at a high level in 60 years.
Furthermore, after a number of star technology stocks broke through and surged, they have also recently shown a trend of high volatility, making the S&P 500 index's gains slightly weak. At the same time, investors are also starting to compete for a “new battleground,” and capital is pouring into ETFs that mainly focus on mid-cap stocks.
Market data shows that the mid-cap index tracks the S&P 400 index$iShares Core S&P Mid-Cap ETF (IJH.US)$The increase over the past six months has gradually surpassed that of tracking the S&P 500$SPDR S&P 500 ETF (SPY.US)$It also greatly surpasses those that track the S&P small cap index$Spdr Portfolio S&P 600 Small Cap Etf (SPSM.US)$stock price performance.
What's the origin? Mid-cap indices have been bullish for decades
US mid-cap stocks refer to a type of stock whose market value in circulation is smaller than blue-chip stocks or large-cap stocks, but higher than small-cap stocks. There is no uniform standard for dividing the market value of mid-cap stocks. There are some differences in the different definitions. It is generally thought that it is a company with a market capitalization between 2 and 10 billion US dollars. The S&P Mid-Cap 400 Index is one of the most commonly used benchmark indices for mid-cap stocks.
According to official documents, the S&P Mid-Cap 400 Index is a continuation of the S&P 500 Index. It tracks companies ranked 501 to 900 in US stock market capitalization after the S&P 500 component stock market capitalization rankings. The market value of these stocks is between US$5.8 billion and US$15.8 billion.
Although the S&P Mid-Cap 400 Index doesn't have much attention in the current market, it is a loud and powerful player. According to data from 1994 to 2020, the S&P Mid-Cap 400 Index performed better than the S&P 500 Index and the S&P Small-Cap 600 Index, with an average annualized return of 12%.
$iShares Core S&P Mid-Cap ETF (IJH.US)$One reason we have been able to outperform the market recently is the excellent performance of our holdings. The ETF's number one holding stock is one of the largest electricity producers in the US$Vistra Energy (VST.US)$Since last year, the stock price has soared 231%; the second-largest holding stock is a home furnishing retailer$Williams-Sonoma (WSM.US)$This is an increase of over 176% from last year to date.
It is worth mentioning that the concentration of positions in the S&P Mid-Cap 400 Index is also much lower than that of the S&P 500 Index, with the top ten holdings accounting for only 6.76%.
Pressure the S&P 500 Index! Mid-cap ETFs are quietly rising
As one of the risk-diversifying arrangements, mid-cap stocks can have the characteristics of medium- and large-cap stocks and small-cap stocks, forming a unique market advantage.
In terms of risk and return, although small-cap stocks have the greatest potential for growth, they also fluctuate due to a relatively single business and are easily affected by performance. Large-cap stocks have the best fundamentals, but long-term performance growth has stabilized. Mid-cap stocks represent a mix of the two, providing a balance of growth and stability.
Judging from the stock price performance, the stock prices of small and medium stocks are more “flexible” and fluctuate more, so the growth momentum in a bull market is stronger than that of large stocks. However, compared to small-cap stocks, the stock price is higher, the market capitalization is larger, and there is relatively little room for stock price manipulation.
Wall Street analysts also gave high expectations for future market trends in mid-cap stocks. Nick Kalivas, head of ETF strategy at Invesco, said that as large cap stocks rise to a high level, investors are seeking diversified investment opportunities other than large technology stocks. As a result, mid-cap stocks, which combine cheap valuations with potential performance improvements, will gradually receive more attention.
Invesco analysts said that the profit forecast for the next two years is also beneficial to smaller companies. The market's general forecast for the profit of large-cap stocks in 2024 is 12.5%, but this ratio jumped to 20.5% for mid-cap stocks and 29.8% for small-cap stocks.
There are also many analysts who believe that the potential of mid-cap stocks is linked to the Federal Reserve's policies. The founder of Choice Wealth Management said that historically, after the Fed's interest rate hike cycle, mid-cap stocks usually outperformed the market.
Currently, there are quite a few mid-cap ETFs that are gradually “showing their strength”, and the increase during the year weighed on the S&P 500 index. Although these ETFs have different positions, they all focus on mid-cap stocks with high investment potential, so their stock price performance is excellent. Among them,$Invesco S&P Midcap Momentum Etf (XMMO.US)$,$Invesco S&P Midcap Quality Etf (XMHQ.US)$,$INVESCO S&P MIDCAP 400A GARP ETF (GRPM.US)$,$Invesco S&P Midcap 400 Pure Growth Etf (RFG.US)$This year, the increases have all reached more than 20%.
Other mid-cap ETFs with assets larger than 100 million US dollars and the highest increase. Futu information has been compiled as follows for bulls to refer to:
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