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After a solid first quarter, Wall Street has been struggling this month as growing inflation worries and escalating geopolitical tensions take a toll on investors’ confidence.

The bouts of economic data points to a stronger economy, dialing back expectations for rate cuts in the first half of this year. Manufacturing activities unexpectedly expanded in March for the first time since September 2022 on a sharp rebound in production and stronger demand. Consumer prices and retail sales accelerated at a faster-than-expected pace in March, pushing inflation higher. This has outlined the case for longer-than-expected higher rates.

Notably, the Federal Reserve, in its latest comments, said that it will take "longer than expected" to achieve the confidence needed to get inflation down to its 2% target.

Further, the tensions in the Middle East have intensified after Iran launched a barrage of missiles and drones on Israel, heightening fears of a wider conflict in the volatile region.

In such a scenario, mid-cap investing can be a strong option, offering a unique balance between growth and stability, diversification benefits and potential for undervalued opportunities.

Why Mid-Caps?

Large-cap stocks tend to be household names with established businesses, while small-cap stocks offer the excitement of undiscovered opportunities. Mid-cap stocks occupy a unique position in the market, combining the stability of large-cap stocks with the growth potential of small-cap ones.

Mid-cap companies occupy a sweet spot in the market, as they have typically outgrown their small-cap counterparts and proven their business models but have not yet reached the size and maturity of large-cap companies. This transitional stage often results in higher growth rates and attractive risk-return characteristics.

Including mid-cap stocks in a portfolio can provide valuable diversification benefits, as they often exhibit different risk-return characteristics compared to large-cap and small-cap stocks. This diversification can help reduce the overall risk of a portfolio, particularly during periods of market volatility, by spreading investments across various market segments that may be impacted differently by market fluctuations.

As a result, mid-cap stocks often exhibit greater growth potential than large caps while providing more stability than small-cap stocks.

Our Picks

ETFs have emerged as a popular way for investors to access mid-cap stocks, offering several advantages. While there are several ETF choices available in the mid-cap space, we have highlighted some solid choices that currently boast a Zacks ETF Rank #1 (Strong Buy) or #2 (Buy), suggesting their outperformance in the months ahead.

Vanguard Mid-Cap ETF (VO - Free Report)

Vanguard Mid-Cap ETF tracks the CRSP US Mid-Cap Index. It holds 328 stocks with a well-diversified portfolio, with each firm holding no more than 0.9% of the total assets. Vanguard Mid-Cap ETF has key holdings in industrials, technology, consumer discretionary and financials.

With AUM of $62.6 billion, Vanguard Mid-Cap ETF charges investors 4 bps in fees per year and has a Zacks ETF Rank #1.

SPDR Portfolio S&P 400 Mid Cap ETF (SPMD - Free Report)

SPDR Portfolio S&P 400 Mid Cap ETF targets the broad mid-cap segment of the U.S. market. It tracks the S&P MidCap 400 Index and holds 401 stocks in its basket, with each accounting for no more than 1% share. Industrials, financials and consumer discretionary are the top three sectors with a double-digit allocation each.

SPDR Portfolio S&P 400 Mid Cap ETF has accumulated $9.7 billion in its asset base. It charges 3 bps in annual fees and has a Zacks ETF Rank #2.

Vanguard S&P Mid-Cap 400 ETF (IVOO - Free Report)

Vanguard S&P Mid-Cap 400 ETF offers exposure to broad mid-capitalization stocks. It follows the S&P MidCap 400 Index, holding 401 securities with none accounting for more than 1% share. Industrials, consumer discretionary and financials are the top three sectors with double-digit exposure each.

Vanguard S&P Mid-Cap 400 ETF has managed $1.9 billion in its asset base. The ETF charges 10 bps in annual fees and has a Zacks ETF Rank #2.

iShares Russell Mid-Cap Growth ETF (IWP - Free Report)

With AUM of $15 billion, iShares Russell Mid-Cap Growth ETF offers exposure to mid-sized U.S. companies whose earnings are expected to grow at an above-average rate relative to the market by tracking the Russell MidCap Growth Index. It holds 330 securities in its basket, with none accounting for more than 2% of the total assets.

iShares Russell Mid-Cap Growth ETF charges 23 bps in annual fees and has a Zacks ETF Rank #2.

Vanguard Mid-Cap Value ETF (VOE - Free Report)

Vanguard Mid-Cap Value ETF follows the CRSP US Mid Cap Value Index, which measures the investment return of mid-capitalization value stocks. It holds 195 stocks in its basket, with each accounting for less than 1.6% of the assets. Industrials, financials, consumer discretionary and utilities are the top four sectors with double-digit exposure each.

Vanguard Mid-Cap Value ETF has amassed $15.8 billion and charges 7 bps in fees per year.

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