IJH: iShares Core S&P Mid-Cap ETF

IJH: iShares Core S&P Mid-Cap ETF

BlackRock, one of the largest investment fund companies in the world, released the iShares Core S&P Mid-Cap ETF (NYSEARCA: IJH) in May 2000. This fund seeks to track the results of the S&P MidCap 400 Index.

The benchmark for IJH measures the performance of mid-cap company stocks in the United States. This includes companies that are evaluated between $750 million and $3.3 billion. The index selects these companies on the basis of liquidity and industry group representation. As of 2015, the S&P MidCap 400 tracked roughly 7% of total U.S. equity market capitalization. The index is adjusted to reflect major changes in capitalization following mergers, acquisitions, stock rights or other major capital events.

As far as portfolio composition, the IJH benchmark is roughly one-quarter financial stock. The next three largest sectors – information technology, industrials and consumer discretionary → account for about 45% of the rest.

Traditional definitions of mid-cap companies place them in a range between $2 billion and $10 billion in total capitalization. The methodology for the MidCap 400 Index is somewhat different; it generally allows for smaller companies. Thus, not all of its holdings may be considered mid-cap by every single investment authority.

Large-cap companies are often seen as safer and slower-growing, while small-cap companies make aggressive plays. The mid-cap equity market serves as the middle ground and has a track record equal to or better than small- and large-cap stocks. Generally speaking, mid-cap companies can raise funds more efficiently than small-cap stocks and find it easier to generate attractive returns that large-cap stocks.

Characteristics

The iShares Core S&P Mid-Cap ETF is managed and advised by BlackRock Investments, LLC. The expense ratio for this fund is very low (0.12%), even for an indexed ETF. It also has an incredibly narrow bid-ask spread (0.03%). Management fees do not include brokerage fees or other trading costs.

Even though the underlying portfolio only tracks smaller mid-cap companies, IJH is a very large ETF with nearly $27 billion in total assets under management. Investors don't have to worry about liquidity either, as IJH's 180 million shares experience an average daily volume of 1.3 million trades.

Shares for IJH trade on the New York Stock Exchange (NYSE). Interested investors can receive a free prospectus on the BlackRock iShares website.

Suitability and Recommendations

All investments come with risks, even well-diversified index ETFs. Even though the iShares Core S&P Mid-Cap ETF tracks a small subset of the total U.S. equity market, mid-cap companies track very well with the health of the broader stock market. Thus, shareholders of IJH are exposed to business cycle risk and stock market risk.

IJH is a very highly regarded ETF, and it has been rewarded for past performance with a massive following and plenty of AUM. Even though the fund category has nearly quadrupled in size since IJH was released, this fund continues to attract investors.

The fund's reasonable trailing three-year beta (1.03) and moderate standard deviation (10.25) make it a strong potential holding within the core of an investment portfolio. The trailing three-year R-squared is only about 75, but increases to above 87 with a five-year sample and the beta only budges a little to 1.13. Historically, mid-cap companies have performed well enough that investors can reasonably expect for positive future returns. BlackRock keeps the management fees, low and volume is never an issue.

IJH should not serve as a standalone investment. IJH's beta suggests that it correlates very highly with the overall stock market, and wise investors should find ways to diversify and hedge their portfolio against economic fluctuations. Examples of possible holdings to add diversification include non-U.S. stocks, commodities, bonds and alternative investments.