Stock ETFs: What about the Mid Caps? - dummies

By Russell Wild

One word on mid cap ETFs . . . why? Yes, for the past several years mid cap stocks — investments in companies with roughly $5 to $20 billion in outstanding stock — have performed especially well. They’ve done better than large caps and have even given small cap stocks a run for their money. But such outperformance of mid cap stocks is a fluke. So, too, is any underperformance.

If you look at the risk/return profile of mid caps over many years, you find that it generally falls right where you would expect it to fall: smack dab in between large and small cap.

Owning both a large cap and small cap ETF, therefore, will give you an average return very similar to mid caps but with considerably less volatility because large and small cap stocks tend to move up and down at different times.

Keep in mind, too, that most large cap and small cap funds are rather fluid: You will get some mid cap exposure from both. Many sector funds — including real estate, materials, and utilities — are also chock-full of mid caps.