In our previous blog posts, we explored key topics essential for securing a better financial future through investment. We discussed the fundamentals of investing, the advantages of passive investing, and the growing popularity of passive investing in recent years.
We introduced one of the most popular passive investing options, S&P 500 ETFs/Funds, one of the best dividend income ETFs/funds, SCHD, and one of the best mid-cap value ETFs focused strong free cash flows, COWZ. We also covered strategies for managing sudden market downturns and considerations for long-term investors during current market highs.
Today we will introduce one of the best Mid-Cap Blend ETFs, XMHQ, the Invesco S&P Mid-Cap Quality ETF.
What?
The Invesco S&P MidCap Quality ETF (XMHQ) is designed to track the performance of the S&P MidCap 400® Quality Index. This index includes a subset of stocks from the S&P MidCap 400® Index that are deemed to have high “quality” based on certain criteria. Launched on December 1, 2006, XMHQ aims to provide exposure to mid-cap companies with robust financial health.
So What?
Let's look at the details of the XMHQ ETF. The values quoted below are as of 5/23/2024 except for the annualized returns (as of 4/30/2024).
Expense Ratio: 0.25%
Net Assets: $4.6 Billion
12-Month Yield: 0.62%
1-Year Annualized Return: 39.9% (cf. S&P500 EFT SPY = 28.8%)
3-Year Annualized Return: 10.9% (cf. S&P500 EFT SPY = 9.8%)
5-Year Annualized Return: 16.6% (cf. S&P500 EFT SPY = 15.1%)
10-Year Annualized Return: 12.4% (cf. S&P500 EFT SPY = 12.7%)
Morningstar Rating: 5 Stars (the best possible rating) in 1-year, 3-year, 5-year, and 10-year performance
The graph below is the growth of $10,000 over 10 years as of 5/22/2024. XMHQ clearly outperformed both the mid-cap blend category and the Morningstar US Mid-Cap Index as of May 10, 2024.
The composition of 79 stocks (as of 5/22/2024) in XMHQ below shows high concentrations in Industrial (33.38%), Consumer Discretionary (15.29%), and Financials (14.26%), totaling nearly 63% of allocation in these 3 sectors.
Now What?
Investment Strategy: Consider XMHQ if you’re looking to add mid-cap exposure with high-quality companies to your portfolio. Its strong historical performance and focus on financially healthy companies make it a potentially strong choice.
Diversification: Pairing XMHQ with large-cap ETFs or common S&P 500 ETFs may enhance diversification by balancing mid-cap and large-cap exposures. XMHQ's focus on quality mid-cap stocks provides differentiated investment opportunities compared to the broad large-cap exposure of the S&P 500. Notably, XMHQ has demonstrated better performance than the S&P 500, in 1-year, 3-year, and 5-year time frames, offering potentially high returns and a unique investment angle.
Risk Management: Depending on your current portfolio mix, risk tolerance, and financial goals, consider allocating a portion of your portfolio to XMHQ to help mitigate risk. Investing in high-quality mid-cap companies may provide more stability during market downturns compared to lower-quality mid-cap stocks.
Long-Term Growth: Invest in XMHQ for long-term growth potential. With its strong historical performance and focus on quality, XMHQ can be a reliable component of your long-term investment strategy, helping you to benefit from the sustained growth of mid-cap stocks over time.
Concluding Remarks
XMHQ represents a compelling option for investors seeking mid-cap exposure with a focus on high-quality companies. Its impressive historical performance, strong sector allocations, and competitive expense ratio make it an attractive addition to a diversified investment portfolio. By pairing XMHQ with large-cap ETFs or S&P 500 ETFs, investors can achieve a well-rounded portfolio that captures the growth potential of high-quality mid-cap stocks while maintaining stability through large-cap exposure. As always, ensure that any investment aligns with your broader financial goals and risk tolerance to maximize your long-term success.
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