This month’s ETF Fund First Cut seeks domestic mid-cap stock exchange-traded funds (ETFs) that have performed well within their category and against their peers over the last five years. This is a continuation in theme from last month’s First Cut, which applied the same criteria to domestic small-cap stock ETFs. In total, 15 funds made the First Cut.

The mid-cap ETFs below are grouped by categories of blended, growth and value, ranked by five-year return. Category averages were included to better compare each fund to its peers and to see how the different investing styles performed.

ETFs without consistent and strong relative performance within their categories were eliminated by requiring A+ Investor grades of C or better for five-year, three-year and one-year returns. The screen excludes leveraged and inverse ETFs and requires a grade of C or better for expense ratio category rank.

Comparing the expense ratios on this month’s First Cut lists for ETFs and mutual funds (opposite page) highlights one of the arguments in favor of choosing ETFs: their greatly reduced expenses. Any type of expense cuts into your absolute, long-term return. Vanguard founder John Bogle was adamant that driving down costs was key to better long-term performance for the average investor.

Passing ETFs also have at least $25 million in total assets and a minimum daily trading volume of 5,000 shares. To eliminate ETFs with excessive risk, those with an A+ Investor grade of F for category risk index were excluded. All the passing ETFs are index funds, meaning they peg their performance to a selected benchmark with the goal of matching it and outperforming peers.

The performance of the blended, growth and value mid-cap ETFs on the First Cut list are in line with recent market trends. Across market capitalizations, value funds lead one-year performance thanks to the recovery from the pandemic bear market last year. Otherwise, growth funds still dominate recent long-term performance over the last five years.

Annualized five-year returns for mid-cap categories underperform comparable returns for large-cap categories. However, recent large-cap dominance has to do with “short-term” economic disruptions in the last two decades; both mid-cap and small-cap stocks have outperformed large-cap stocks over the long term.

Mid-Cap ETFs With Consistent & Strong Relative Performance
(Ranked by Five-Year Return)

A+ Investors can see an updated list of ETFs that pass this screen at www.aaii.com/etfs/firstcuts.

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Small-Cap ETFs Showing Strong & Consistent Relative Performance

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