What Is the S&P MidCap 400 Index?
S&P MidCap 400 Index Definition: Benefits and Risks of Mid-Cap Stocks
Investing in mutual funds or ETFs that track the S&P MidCap 400 Index can be a smart way to passively invest in U.S. stocks of middle capitalization, also known as mid-cap stocks. Investors who buy and hold mid-cap stocks are typically looking for long-term growth and the potential to outperform large-cap stocks in the long term.
S&P MidCap 400 Index Definition
The S&P MidCap 400 Index, also known as the S&P 400, is an index comprised of U.S. stocks in the middle capitalization range, which is roughly between $2 billion and $8 billion in market value. Some investors are attracted to mid-cap companies because they are more established than small-cap stocks but may offer greater growth potential than large-caps.
The 400 index is designed to mirror the performance of roughly 400 mid-cap stocks. Examples of stocks found in the MidCap 400 index include some widely known companies, such as Domino's Pizza Inc (DPZ) and lesser-known companies, such as Tyler Technologies Inc (TYL) and West Pharmaceutical Services (WST).
Mutual Funds and ETFs That Track the S&P MidCap 400 Index
Here are some of the largest mutual funds and exchange-traded funds (ETFs) that track the S&P MidCap 400 Index:
Mutual funds that track the S&P MidCap 400 Index:
- 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 MidCap Index:
- iShares Core S&P MidCap ETF (IJH)
- SPDR S&P MidCap 400 ETF Trust (MDY)
- Vanguard S&P MidCap 400 ETF (IVOO)
The S&P 400 is not the only index that tracks a mid-cap stock index. Another key index that covers mid-cap stocks is the Russell Midcap Index, which includes 800 of the smallest market cap stocks within the Russell 1000. This index is also covered by mutual funds and ETFs that track its performance.
Potential Benefits of Investing in Mid-Cap Stock Index Funds
There are a few key benefits of investing in an index of mid-cap stocks:
- Growth potential: Companies that are mid-capitalization are generally established businesses that are still in the growth phase of the business cycle. This offers potential for growth in the price of the stock and the potential to become a large-cap stock in the future.
- Relative stability: Compared to smaller capitalization, mid-cap stocks can provide growth with less volatility (fluctuations in price).
- Diversification: Mid-cap stock index funds typically invest in hundreds of stocks, representing multiple market sectors. Diversification can help to reduce market risk.
Potential Risks of Investing in Mid-Cap Stock Index Funds
Here are the primary risks of investing in mid-cap stocks:
- Price risk: Mid-cap stocks can decline in price more, as compared to other areas of the stock market, such as large-cap stocks, which are more established.
- Principal risk: Like with other stocks, mid-cap stocks have the potential of declining in value beneath the original amount invested by the shareholder.
The mid-cap stock range of capitalization has been said to represent a "sweet spot" of investing because mid-caps have greater growth potential than large-cap stocks but are more established than small-cap stocks, hence greater stability of price.
Although there's no guarantee mid-cap stocks will continue this long-term trend, investors who want to add diversity while creating an aggressive portfolio of mutual funds, may consider investing in mid-cap stock funds, especially the index funds and Exchange Traded Funds (ETF) that track mid-cap stock indices.
Mid-cap funds can be a part of diversified portfolio that includes other mutual funds from different categories and asset classes. Investors can potentially capture 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.
Above all, investors should be sure that their investments are appropriate for their financial goals and tolerance for risk.
Disclaimer: The information on this site is provided for discussion purposes only, and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell securities.
S&P Dow Jones Indices. "S&P MidCap 400 Index." Accessed April 24, 2020.
Vanguard. "Vanguard S&P Mid-Cap 400 Index Fund Institutional Shares." Accessed April 24, 2020.
Morningstar. "Principal MidCap S&P 400 Index." Access April 24, 2020.
Morningstar. "BNY Mellon MidCap Index Inv." Accessed April 24, 2020.
iShares.com. "iShares Core S&P MidCap ETF." Accessed April 24, 2020.
State Street Global Advisors. "SPDR S&P MidCap 400 ETF Trust." Accessed April 24, 2020.
Vanguard. "Vanguard S&P MidCap 400 Index (IVOO)." Accessed April 24, 2020.
FTSE Russell. "Russell Midcap Index." Accessed April 24, 2020.