Middleweights punching above the heavyweights
In 2017, the S&P/ASX MidCap 50 Index returned 22.06% almost double the returns of the S&P/ASX 200 Accumulation Index. Last year was not an aberration, over one, three, five and fifteen years the S&P/ASX MidCap 50 Index has the highest returns compared to the broad, large and small-cap S&P/ASX indices
Mid-caps offer the best of both small
and large-caps. They represent a mix of established and still developing
companies and a good balance between the energy and youth of small-caps and the
stability of large companies.
There are several reasons mid-caps are often referred to as the ‘sweet spot’ of the Australian stock market:
This is where M&A happens. For example: David Jones, iiNet, Qube, Tabcorp etc;
Capital expenditure is generally higher. Mid-caps tend to reinvest more in their business than large-caps;
More agility. Due to their size mid-caps are able to respond more quickly to growth opportunities; and
Room for growth. Mid-caps often experience higher revenue and net income growth than large-caps.
In 2017, the S&P/ASX 200 Accumulation Index rose 11.80% – dragged down by the Top 20 which rose just 7.28%, as measured by the S&P/ASX 20 Index.
In contrast, the S&P/ASX MidCap 50 Index led the pack when it came to investment returns. This has held over time. Over the past 15 years to 31 December 2017, the S&P/ASX MidCap 50 Index outperformed both Australian large and small-cap indices, as the chart below shows.
The following table shows the performance of the S&P/ASX MidCap 50 Index in comparison to other key S&P/ASX indices over the fifteen years to 31 December 2017. The S&P/ASX MidCap 50 Index delivered the best performance over one, three, five and 15-year periods.
With a broad mix of technology players, healthcare stocks, consumer discretionary companies and others, the mid-cap sector has greater exposure to a wide range of growth industries, with no single sector dominating. That is a sharp contrast to the S&P/ASX 200 Accumulation Index, where the big four banks and Macquarie Bank represent nearly one third of the index.
So if your portfolio is invested in a broad market cap strategy tracking indices such as the S&P/ASX 100, 200 or 300, you are not getting much exposure to the growth potential of mid-caps – but overexposure to the top 10.
The chart below illustrates the percentage of exposures to the top 10 and mid-cap 50 stocks in portfolios tracking the S&P/ASX 300, 200 and 100 indices.
The chart below illustrates the greater sector diversity of the S&P/ASX MidCap 50 Index compared to the S&P/ASX 200 Index.
The VanEck Vectors S&P/ASX MidCap ETF (ASX: MVE) is the only ASX ETF which tracks the S&P/ASX MidCap 50 Index.
This information is issued by VanEck Investments Limited ABN 22 146 596 116 AFSL 416755 (‘VanEck’) as responsible entity and issuer of the VanEck Vectors S&P/ASX MidCap ETF (‘Fund’). This is general information only and not financial advice. It does not take into account any person’s individual objectives, financial situation or needs. Before making an investment decision in relation to the Fund, you should read the PDS and with the assistance of a financial adviser consider if it is appropriate for your circumstances. The PDS is available at www.vaneck.com.au or by calling 1300 68 38 37. The Fund is subject to investment risk, including possible loss of capital invested. Past performance is not a reliable indicator of future performance. No member of the VanEck group of companies gives any guarantee or assurance as to the repayment of capital, the payment of income, the performance or any particular rate of return from the Fund.
The "S&P/ASX MidCap 50 Index" is a product of S&P Dow Jones Indices LLC or its affiliates (“SPDJI”) and ASX Limited (“ASX”) and licensed for use by VanEck. S&P® is a registered trademark of Standard & Poor’s Financial Services LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks have been licensed for use by SPDJI and sublicensed by VanEck. The Fund is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates, or ASX and none of them makes any representation regarding the advisability of investing in the Fund. Such parties do not accept liability for any errors, omissions or interruptions of the S&P/ASX MidCap 50 Index and do not give any assurance that the Fund will accurately track the performance of the index or provide positive investment returns. Inclusion of a security within the index or Fund is not a recommendation by any party to buy, sell or hold such security.