This year, there haven't been many havens for stock investors, but two areas are holding their own: small- and mid-size company stocks.
ETFs following mid- and small- cap stocks have held up better than their larger counterparts. The MidCap SPDRs (MDY) is down just 4.6 percent, and the iShares S&P SmallCap 600 Index Fund (IJR) is off by 4.9 percent. In contrast, the SPDRs S&P 500 ETF (SPY) has declined by 12.8 percent as of July 22.
Mid-cap indexes are generally comprised of companies with market capitalization that ranges from $2 billion to $10 billion. Small-cap indexes include firms with market capitalization that usually falls between $250 million to $2 billion. (A company's market capitalization is determined by multiplying the number of shares outstanding by one share of a company's stock price.)
Do your clients own small-company stocks? If their portfolios are badly underperforming this year, it may be because they don't have enough exposure to small- and mid-cap stocks. By introducing clients to a diversified-index ETF, you can easily plug any missing holes in their portfolios. It could also save you the trouble of researching and selecting individual stocks.
What about cost? ETFs that follow true market indexes in the small- and mid- cap categories generally charge annual expenses of 0.10 to 0.25 percent. Compared to actively managed mutual funds, this represents a huge cost advantage?
