Should the SPDR S&P MidCap 400 ETF (MDY) be on your Investment Radar?

Launched on 04/05/1995, the SPDR S&P MidCap 400 ETF (MDY) is a lightly managed exchange-traded fund designed to provide broad exposure to the Mid Cap Blend segment of the US stock market.

The fund is sponsored by State Street Global Advisors. It has accumulated more than $23.16 billion in assets, making it one of the largest ETFs attempting to match the Mid-Cap Composite segment of the US stock market.

Why the Middle Frame Combination?

Average companies have a market capitalization between $2 billion and $10 billion. They usually have higher growth prospects than large-cap companies and are less volatile than small-cap companies. These types of companies, then, have a good balance of stability and growth potential.

Typically holding a mix of growth and value stocks, hybrid ETFs also exhibit characteristics seen in both value and growth investing.

Cost

The expense ratio is an important factor in ETF returns and over the long term, cheaper funds can significantly outperform their more expensive counterparts, other things being equal.

Annual operating costs for this ETF are 0.24%, putting it on par with many of its peers in this space.

it has a trailing 12-month dividend yield of 1.16%.

Industry Definition and Top Holdings

It is important to look into ETF stocks before investing despite the many advantages of these types of funds such as diversified exposure, which reduces the risk of a single stock. And, most ETFs are transparent products that disclose their holdings on a daily basis.

This ETF has the largest allocation to the Industrials sector – about 22.10% of the portfolio. Finance and Consumer Discretion round out the top three.

Looking at individual assets, Illumina Inc. (ILMN) accounts for about 0.75% of total assets, followed by Carlisle Companies Incorporated (CSL) and Lennox International Inc. (LII).

The top 10 stocks account for approximately 6.33% of total assets under management.

Performance and Risk

MDY seeks to compare the performance of the S&P MidCap 400 Index before fees and expenses. The S&P MidCap 400 Index is composed of 400 selected stocks listed on the national stock market, and includes a variety of major industry groups.

The ETF has gained about 12.37% so far this year and is up about 26.94% over the past year (as of 10/03/2024). Over the past 52 weeks, it has traded between $425.08 and $572.06.

The ETF has a beta of 1.11 and a standard deviation of 20.24% over the next three years, making it a medium-risk option in the space. With about 401 stocks, it effectively diversifies company-specific risks.

An Alternative

The SPDR S&P MidCap 400 ETF has a Zacks ETF Rank of 3 (Hold), which is based on expected asset class returns, expense ratios and momentum, among other factors. Therefore, MDY is a perfect choice for those looking for exposure to the Style Box – Mid-Shape Combination area of the market. Investors may also want to consider other ETF options in the space.

Vanguard Mid-Cap ETF (VO) and iShares Core S&P Mid-Cap ETF (IJH) track the same index. While the Vanguard Mid-Cap ETF has $69.42 billion in assets, the iShares Core S&P Mid-Cap ETF has $90.23 billion. VO has an expense ratio of 0.04% and IJH charges 0.05%.

The bottom line

Soft-managed ETFs are becoming increasingly popular with institutional as well as retail investors due to their low costs, transparency, flexibility and tax efficiency. They are the best vehicles for long-term investors.

To learn more about this product and other ETFs, view products that match your investment goals and read articles about the latest developments in the world of ETF investing, please visit the Zacks ETF Center.

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