S&P MidCap 400 Index: Tracking Mid-Size US Companies

The Mid-Cap 400 Index includes 400 U.S. midsize companies, weighted by market value. It's popular and has sector groupings like the S&P 500. You can invest in ETFs or mutual funds tracking this index.

Basics

The S&P MidCap 400 is an index by Standard & Poor's (S&P), comprising 400 companies with market capitalizations between $3.6 billion and $13.1 billion. Launched in 1991, it's a key indicator for U.S. stock market trends.

Tracking Mid-Size US Companies

The S&P MidCap 400 Index tracks U.S.-based companies with market capitalizations between $3.6 billion and $13.1 billion. To qualify, companies must have a minimum investable weight factor of 0.10 and be listed on an exchange. This includes equities like real estate investment trusts (REITs) but excludes closed-end funds, American depositary receipts (ADRs), and exchange-traded funds (ETFs).

The index employs a market-cap-weighted system, giving greater influence to larger-cap companies. Each company's weight is determined by dividing its market cap by the total market caps of all 400 companies in the index.

It is recalculated quarterly (March, June, September, December) and available in various currencies. As of April 30, 2021, the top sectors were industrials (18.5%), financials (15.9%), consumer discretionary (14.8%), information technology (13.4%), and health care (11.7%). The top five holdings included Bio-Techne, Charles River, Fair Isaac & Co, Cognex, and Molina Healthcare.

Comparing to the S&P 500

The S&P 500, launched in 1997, is a market-cap-weighted index featuring the 500 largest U.S. companies, making it a prime indicator of the U.S. large-cap market. Constituents must have a market cap of at least $13.1 billion, and like the S&P MidCap 400, it's rebalanced quarterly.

As of April 30, 2021, the index had 505 constituents. The top sectors were information technology (26.7%), health care (12.8%), consumer discretionary (12.7%), financials (11.5%), and communication services (11.2%). The leading companies were Apple, Microsoft, Amazon, Meta (formerly Facebook), and Alphabet A.

The S&P 400 MidCap Index had a year-to-date (YTD) return of 18.58%, a one-year return of 67.9%, and a 10-year return of 12.11% as of April 30, 2021. In comparison, the S&P 500 had returns of 13.38%, 43.99%, and 20.22% on a YTD, one-year, and 10-year basis.

S&P 400 Composition

The S&P MidCap 400 Index aims to represent major GICS categories through discretionary selection. It's weighted by market capitalization, with larger companies holding more sway, potentially limiting diversification. Only publicly traded shares are considered, and the index value calculation involves a proprietary divisor. Investors can assess a company's impact on the index by calculating its weight, which depends on its market cap.

S&P 400 Pros and Cons

Pros of Mid-Cap Stocks:

1. Steady Growth: Mid-cap stocks offer relatively stable growth compared to small-cap stocks, reducing volatility in share prices.
2. Diverse Investment: Indices like S&P MidCap 400 provide access to a diverse range of sectors and stocks, reducing overall market risk for investors.
3. Growth Potential: Mid-cap companies, while established, often have room for more growth as they aim to become larger companies.

Cons of Mid-Cap Stocks:

1. No Guarantees: Investing in an index like the S&P MidCap 400 carries inherent risks, including the potential loss of principal.
2. Management Fees: Some funds tracking the index may have high management fees, reducing returns for investors. Additionally, entry points may require a substantial initial investment.
3. Price Volatility: Mid-cap companies are more volatile than larger ones, which can lead to greater price risk due to their less stable revenue streams.

Conclusion

The S&P MidCap 400 Index provides investors with exposure to a diverse range of mid-size U.S. companies. While it may be subject to higher price volatility and management fees, it offers the potential for steady growth and growth potential. Investors should carefully weigh the pros and cons before investing in this index, considering their individual investment goals and risk tolerance.