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Mid-Cap ETFs Are Huge Performers, But Nobody’s Buying

Will an ESG twist entice investors?
relates to Mid-Cap ETFs Are Huge Performers, But Nobody’s Buying

Illustration: Tomi Um for Bloomberg Businessweek

It’s not easy being the middle child. Just ask the category of exchange-traded funds, or ETFs, tracking U.S. mid-cap companies. The SPDR S&P MidCap 400 ETF Trust, or MDY, is the largest mid-cap ETF. Despite grossly outperforming its large-cap and small-cap fund competitors, it has the least amount of assets among the three. To take that a step further, if you compare the performance of all ETFs that have ever existed, MDY would have been the best bet, according to Bloomberg Intelligence ETF analyst Eric Balchunas. “Mid-caps are the Jan Brady of the stock market, the forgotten middle child,” he says. “I continue to be amazed by mid-caps, and I continue to forget about them.”

Perhaps one way to lure investors to the category would be to add some sexy investment theme that’s popular with millennials—such as ESG, a metric used to evaluate companies’ environmental, social, and governance characteristics. That’s just what Nuveen LLC did in December 2016 when it launched two mid-cap exchange-traded funds based on ESG criteria. The idea was to offer something that wasn’t on the market, and clients were also clamoring to infuse their portfolios with ESG, according to Martin Kremenstein, head of retirement products at Nuveen.