Mid-Cap ETFs Continue to Dominate the Competition

The month of May was relatively kind to most areas of the U.S. market. Let's look at the benchmarks:

• The S&P 500 SPDR Trust (SPY), a measure of large company performance, picked up 1.3%.
• The iShares Russell 2000 Index Fund (IWM), a gauge of small company progress, vaulted 4.5%.
• The S&P MidCap 400 Trust (MDY), a premier exchange-traded index fund for mid-sized vehicles, rocketed 5.4%.

If the gains had been confined to May alone, one might not make too much of the price movement. However, mid-sized companies have served as the most profitable area... all year long.

On the year, the largest companies in the S&P 500 are collectively down (-4.6%). And that's prior to the selling activity here on the first trading day of June.

The situation is only a bit rosier for the smaller companies listed on the Russell 2000. The iShares Russell 2000 Index Fund (IWM) showed a 1/1/-5/31 YTD loss of -2.0%.

In contrast, mid-size stocks are up 3.4% in the first 5 months. Better yet, they have been the most resilient with the sharpest gains off the January and March lows.

Of course, it's one thing to demonstrate success over 1-month and 5-month periods. It's another to show the largest advances off the market bottoms.

Yet, a true understanding of risk takes the downside into account. On days where virtually every area of equity exposure are down, for instance, how do the various sizes stack up?

My curiosity led me to look at three of the most erratic trading days in '08: January 22, March 14, and May 7.

In truth, I have "cherry-picked" these days based on volatility spikes. I readily admit, in fact, that spikes in the CBOE Volatility Index (VIX) are not the end-all or be-all. (Read more about the VIX here.)

Nevertheless, looking at volatile, VIX-based sell-offs give us a casual glimpse of investor behavior during psychologically challenging days in the marketplace. Here's what I found:

	1/22/2008	3/14/2008	5/7/2008
SPY	-1.11%	-2.08%	-1.81%
IWM	-0.71%	-2.51%	-1.54%
MDY	-0.23%	-1.46%	-0.96%

As you might expect, losses prevailed on each day that extreme volatility dominated. What you may or may not have expected... in each circumstance... were the smaller losses by the S&P MidCap 400 Trust (MDY).

By no means am I suggesting that mid-caps are always safer on the downside than small or large-sized companies. That said, mid-cap exchange-traded funds have been rising more on extremely bullish days and falling less on exceptionally volatile (and arguably bearish) days. Indeed, even the first trading day of June is holding true to this pattern.

Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Advisor with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.