What Is the S&P MidCap 400 Index?

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DEFINITION

The S&P MidCap 400 Index is a stock index that tracks the performance of 400 mid-sized U.S. companies.

The S&P MidCap 400 Index is a stock index that tracks the performance of 400 mid-sized U.S. companies. The focus on mid-sized companies distinguishes it from the more popular S&P 500, which tracks large companies. Investors who buy and hold mid-cap stocks are often looking for long-term growth. They're also looking for the potential to outperform large-cap stocks.

Here's what you need to know about the S&P MidCap 400 Index and how you can use it in your portfolio.

Definition of the S&P MidCap 400 Index

The S&P MidCap 400 Index comprises U.S. stocks that strike a middle ground between the largest (large-cap) and smallest (small-cap or micro-cap) public companies. These companies typically have market capitalizations of between $2 billion and $10 billion.

  • Alternate name: S&P 400

How Does the S&P MidCap 400 Index Work?

Mid-cap stocks are sometimes said to represent a "sweet spot" of investing. That's because mid-caps have greater growth potential than large-cap stocks. They also often have more price stability than small-cap stocks.

Mid-caps are popular with those who want to add diversity while maintaining an aggressive portfolio. You may be able to achieve greater exposure to the entire U.S. stock market by investing in a large-cap index fund, a mid-cap index fund, and a small-cap index fund.

Warning

Always that ensure your investments are appropriate for your level of risk tolerance and long-term financial goals.

How to Invest in the S&P MidCap 400 Index

The S&P 400 is an index—it isn't a fund that holds any shares. However, it is easy to find investment products that track this index. If you have the capital on hand, you can recreate the index yourself by individually buying all the stocks on the index.

If you don't have the means to buy hundreds of stocks at one time, you can look for exchange-traded funds (ETFs) and mutual funds that make it easy to add the same exposure at a much lower cost.

Here are some mutual funds that track the S&P 400—these may be limited to institutional investors:

  • Vanguard S&P Mid-Cap 400 Index Fund Institutional Shares (VSPMX)
  • Principal MidCap S&P 400 Index Inst (MPSIX)
  • BNY Mellon MidCap Index Inv (PESPX)

ETFs that track the S&P 400 include:

  • iShares Core S&P MidCap ETF (IJH)
  • SPDR S&P MidCap 400 ETF Trust (MDY)
  • Vanguard S&P MidCap 400 ETF (IVOO)

Note

The S&P 400 is not the only index that lists mid-cap stocks. Examples of mid-cap indices include the Russell Midcap Index and the Wilshire Mid-Cap Index. These indices represent similar market segments, but they use slightly different methodologies for including stocks. Like the S&P 400, you can buy ETFs and mutual funds that track Russell and Wilshire indices.

Pros and Cons of the S&P MidCap 400 Index

Pros
  • Growth potential

  • Relative stability

  • Diversification

Cons
  • Price risk

  • Principal risk

  • Fund management fees

Pros Explained

  • Growth potential: Mid-capitalization companies are generally established businesses that are still in the growth phase of the business cycle, offering the potential for growth as the mid-cap stock transitions into a large-cap stock.
  • Relative stability: Compared to small-capitalization stocks, mid-cap stocks can provide growth opportunities with less price volatility.
  • Diversification: Mid-cap stock index funds typically invest in hundreds of stocks representing multiple market sectors. Diversification can help to reduce market risk.

Cons Explained

  • Price risk: While mid-cap stocks are more stable than small-cap stocks, they are more volatile than large-cap stocks. If you prioritize minimizing price risk, then mid-cap stocks might not be the best fit for you.
  • Principal risk: Similar to other stocks, mid-cap stocks have the potential to decline in value below the original amount invested. It is possible to lose your principal investment with mid-cap stocks.
  • Fund management fees: Unless you have the cash to buy hundreds of stocks at once to replicate the S&P 400 on your own, you'll probably have to buy an ETF or mutual fund that tracks the index. There are a lot of benefits to these products, but one downside is that you'll have to pay a fund manager a fee for tracking the index on your behalf.

Key Takeaways

  • The S&P MidCap 400 Index is an index that tracks 400 mid-cap public companies in the U.S.
  • The S&P MidCap 400 Index represents a middle ground between large-cap stocks (which are more stable but grow more slowly) and small-cap stocks (which are less stable but offer opportunities for more rapid growth).
  • The easiest way to invest in this index is through an ETF or mutual fund.
  • The S&P 400 is just one example of a mid-cap index; there are several indexes that use slightly different methods when choosing mid-cap stocks.

Article Sources

  1. S&P Dow Jones Indices. "S&P MidCap 400 Index."

  2. FTSE Russell. "Russell US Indexes."

  3. Wilshire. "Indexes."