Alternate name: S&P 400
How Does the S&P MidCap 400 Index Work?
Mid-cap stocks are sometimes said to represent a “sweet spot” of investing. That’s because mid-caps have greater growth potential than large-cap stocks. They also often have more price stability than small-cap stocks. Mid-caps are popular with those who want to add diversity while maintaining an aggressive portfolio. You may be able to achieve greater exposure to 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.
How to Invest in the S&P MidCap 400 Index
The S&P 400 is an index—it isn’t a fund that holds any shares. However, it is easy to find investment products that track this index. If you have the capital on hand, you can recreate the index yourself by individually buying all the stocks on the index. If you don’t have the means to buy hundreds of stocks at one time, you can look for exchange-traded funds (ETFs) and mutual funds that make it easy to add the same exposure at a much lower cost. Here are some mutual funds that track the S&P 400—these may be limited to institutional investors:
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 include:
iShares Core S&P MidCap ETF (IJH) SPDR S&P MidCap 400 ETF Trust (MDY) Vanguard S&P MidCap 400 ETF (IVOO)
Pros and Cons of the S&P MidCap 400 Index
Pros Explained
Growth potential: Mid-capitalization companies are generally established businesses that are still in the growth phase of the business cycle, offering the potential for growth as the mid-cap stock transitions into a large-cap stock. Relative stability: Compared to small-capitalization stocks, mid-cap stocks can provide growth opportunities with less price volatility. Diversification: Mid-cap stock index funds typically invest in hundreds of stocks representing multiple market sectors. Diversification can help to reduce market risk.
Cons Explained
Price risk: While mid-cap stocks are more stable than small-cap stocks, they are more volatile than large-cap stocks. If you prioritize minimizing price risk, then mid-cap stocks might not be the best fit for you. Principal risk: Similar to other stocks, mid-cap stocks have the potential to decline in value below the original amount invested. It is possible to lose your principal investment with mid-cap stocks. Fund management fees: Unless you have the cash to buy hundreds of stocks at once to replicate the S&P 400 on your own, you’ll probably have to buy an ETF or mutual fund that tracks the index. There are a lot of benefits to these products, but one downside is that you’ll have to pay a fund manager a fee for tracking the index on your behalf.
