From the April 2007 issue of Research Magazine • Subscribe!

April 1, 2007

Mid-Cap SPDRs Get Strong Start

Could this be the year that mid-caps outperform? After lagging in 2006, mid-cap stocks are on the rise.

As of mid-February, the Mid-Cap SPDR (Amex:MDY) was up 5.47 percent since the beginning of 2007. By contrast, the iShares Russell 2000 small-cap ETF (Amex: IWM) was up 3.09 percent and the large-cap SPDR (Amex: SPY) was up 2.31 percent -- in other words, performance for mid-cap stocks (generally defined as companies with a market capitalization in the $2 billion to $10 billion range) is outpacing both large and small-cap stock indexes.

The ETF universe offers multiple roads to obtaining mid-cap exposure. Along with the Mid-Cap SPDR, State Street Global Advisors offers the SPDR DJ Wilshire Mid-Cap ETF (Amex:EMM), which follows a Dow Jones index of 500 mid-size companies and has an expense ratio of 0.25 percent.

A competing fund is the Vanguard Mid-Cap ETF (Amex:VO), which tracks an MSCI mid-cap index of roughly 450 stocks. The Vanguard fund carries an expense ratio of 0.13 percent, making it one of the most inexpensive choices in the category of mid-cap ETFs.

In addition to straight-ahead capitalization limits, many mid-cap ETFs come with a growth or value orientation. Stocks within a respective mid-cap index are screened by index providers for whether they best represent value or growth opportunities. For example, a stock with a low relative P/E ratio would typically be classified as value stock and likely included inside a value-based index. On the other hand, companies with high earnings or sales growth might be more suited to a growth index.

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