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In the world of investing, the S&P/ASX 200 gets the most attention for Australian equities. It is on the newswires and is the market benchmark that fund managers either track or aim to outperform. However, another S&P/ASX market capitalisation index, one that is often overlooked, is the one that has the most outstanding performance track record - the S&P/ASX MidCap 50 Index, aka the Mighty MidCaps.

In the world of Australian equities, the S&P/ASX 200 gets most of the attention. Yet there is another market cap index which has a better track record when it comes to performance. 

In the world of investing, the S&P/ASX 200 gets the most attention for Australian equities. It is on the newswires and is the market benchmark that fund managers either track or aim to outperform. However, another S&P/ASX market capitalisation index, one that is often overlooked, is the one that has the most outstanding performance track record - the S&P/ASX MidCap 50 Index, aka the Mighty MidCaps.

The MidCap 50 Index is diversified across all the sectors of the Australian economy and gives exposure to Australian growth opportunities including the much hyped technology sector including Afterpay, Wisetech, Xero, Altium and NextDC, to name a few.


How sweet it is
Australian Mid-Caps are the 'sweet spot' of the Australian equity universe and represent companies with the spirit of small companies combined with the maturity of large companies.

There are several reasons mid-caps are often referred to as the ‘sweet spot’ of the Australian stock market:
  • This is where M&A happens. For example: TPG/Vodafone, HealthScope, OZ Minerals takeover of Cassini; 
  • Capital expenditure is generally higher. Mid-caps tend to reinvest more in their business than large-caps;
  • Greater agility. Due to their size mid-caps are able to respond more quickly to growth opportunities; and
  • Room for growth. MidCaps often experience higher revenue and net income growth than large-caps.


Performance
Since their inception in April 2000, the S&P/ASX MidCaps Index has been the star performer compared to the S&P/ASX Small Ordinaries Index and the large-cap dominated indices.

Performance April 2000 to 30 June 2020

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Source: VanEck, Morningstar, as at 30 June 2020. S&P/ASX indices commenced 4 April 2000. Results are calculated to the last business day of the month and assume immediate reinvestment of all dividends and exclude costs associated with investing in MVE. You cannot invest directly in an index. Past performance of the S&P/ASX MidCap 50 Index is not a reliable indicator of future performance of MVE.

Using the Sharpe ratio as a measure, which takes into account returns and volatility, the S&P/ASX MidCap 50 Index also has the most favourable risk adjusted performance compared to other S&P/ASX indices. The greater the value of the Sharpe ratio, the better the risk adjusted return. The table below shows that the S&P/ASX MidCap 50 Index has delivered the best risk-adjusted returns over one, five, ten and twenty years.

Risk-adjusted returns (Sharpe ratio)

 

1 Year (%)

3 Years

(%)

5 Years

(%)

10 Years

(%)

20 Years

(%)

S&P/ASX MidCap 50 Index

0.16

0.33

0.59

0.53

0.45

S&P/ASX 200 Index

-0.19

0.32

0.37

0.46

0.32

S&P/ASX 20 Index

-0.32

0.31

0.25

0.41

0.29

S&P/ASX 50 Index

-0.28

0.31

0.32

0.45

0.31

S&P/ASX Small Ordinaries Index

-0.04

0.34

0.44

0.21

0.18

Source: VanEck, Morningstar, as at 30 June 2020. Bolded results are highest. Results are calculated to the last business day of the month and assume immediate reinvestment of all dividends and exclude costs associated with investing in MVE. You cannot invest directly in an index. Past performance of the S&P/ASX MidCap 50 Index is not a reliable indicator of future performance of MVE.


Diversity

With a broad mix of technology players, healthcare stocks, consumer discretionary companies and others, the mid-cap sector provides increased exposure to a wide range of growth industries.

The growing importance of technology on the ASX has seen it become one of the biggest sectors in the MidCap 50 Index. At the last rebalance in June, NextDC graduated to the MidCap 50. Other IT names currently in the index include AfterPay, Altium, Wisetech and Xero.

% representation of information technology sector in S&P MidCap 50 Index
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Source: Factset.

The chart below illustrates the greater sector diversity of the S&P/ASX MidCap 50 Index compared to the S&P/ASX 200 Index.
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Source: VanEck, S&P Dow Jones Indices; as at 30 June 2020.

The VanEck Vectors S&P/ASX MidCap ETF (ASX: MVE) is the only ASX ETF which tracks the S&P/ASX MidCap 50 Index.

Published: 13 July 2020

Important Notice: This information is issued by VanEck Investments Limited ABN 22 146 596 116 AFSL 416755 (‘VanEck’) as responsible entity and issuer of the VanEck Vectors S&P/ASX MidCap ETF (‘Fund’). Nothing in this content is a solicitation to buy or an offer to sell shares of any investment in any jurisdiction including where the offer or solicitation would be unlawful under the securities laws of such jurisdiction. This information contains general advice only about financial products and is not personal financial advice. Before making an investment decision, you should read the PDS and with the assistance of a financial adviser consider if it is appropriate for your circumstances. The PDS is available at www.vaneck.com.au or by calling 1300 68 38 37. The Fund is subject to investment risk, including possible loss of capital invested. The PDS details the key risks. Past performance is not a reliable indicator of future performance. No member of the VanEck group of companies gives any guarantee or assurance as to the repayment of capital, the payment of income, the performance, or any particular rate of return from the Fund. The S&P/ASX MidCap 50 Index is a product of S&P Dow Jones Indices LLC or its affiliates (“SPDJI”) and ASX Limited (“ASX”) and licensed for use by VanEck. S&P® is a registered trademark of Standard & Poor’s Financial Services LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks have been licensed for use by SPDJI and sublicensed by VanEck. The Fund is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates, or ASX, and none of them makes any representation regarding the advisability of investing in the Fund. Such parties do not accept liability for any errors, omissions or interruptions of the S&P/ASX MidCap 50 Index and do not give any assurance that the Fund will accurately track the performance of the index or provide positive investment returns. Inclusion of a security within the index or Fund is not a recommendation by any party to buy, sell or hold such security.