IMCG - IMCG: A Great Way To Access Mid-Caps

2023-12-19 10:24:43 ET

Summary

• iShares Morningstar Mid-Cap Growth ETF is a passively managed fund that invests in growth-oriented mid-cap companies.
• Mid-cap stocks offer a balance of growth and stability, making them attractive for portfolio diversification.
• IMCG has a diverse portfolio with significant allocations in the information technology, industrials, and healthcare sectors.

Consistent with my theme for next year that mid and small-cap stocks likely outperform large-cap ones, it's worth looking at the iShares Morningstar Mid-Cap Growth ETF (IMCG). IMCG, managed by global investment firm BlackRock, is an exchange-traded fund designed to track the performance of the Morningstar US Mid Cap Broad Growth Index. This passively managed fund, launched on June 28, 2004, invests primarily in growth-oriented mid-cap companies across various sectors, providing investors with an opportunity to participate in the growth potential of these firms.

Mid-cap stocks refer to the shares of companies that have a market capitalization-the total market value of a company's outstanding shares of stock-between $2 billion and $10 billion. These companies are often in the growth phase of their lifecycle, expected to increase profits, market share, and productivity. Mid-cap stocks provide a balance of growth and stability, making them an important component for portfolio diversification. They often offer a blend of the potential for growth, like small-cap stocks, and the stability of large-cap stocks. This combination can lead to a higher return, making mid-cap stocks particularly attractive to investors who are less risk-averse.

IMCG Holdings: A Closer Look

IMCG boasts a diverse portfolio with a broad depth of exposure, comprising 305 holdings. The most significant allocations are in the information technology, industrials, and healthcare sectors. Top holdings include:

• Agilent Technologies (A): A prominent player in the life sciences tools & services industry, Agilent Technologies serves various end-markets, including pharma and biotech, chemical and energy, and food sectors. Despite its comparatively low forward revenue growth rate, Agilent is expected to deliver solid EBITDA, EPS, and cash flow improvements.
• TransDigm Group (TDG): A key supplier of aircraft components, TransDigm Group holds a significant position in IMCG's industrial portfolio.
• Marvell Technology (MRVL): As a part of IMCG's considerable exposure to the tech sector, Marvell Technology is a prominent semiconductor company.
• Workday (WDAY): A major player in the corporate-facing apps and tech solutions space, Workday is another tech company in IMCG's portfolio.

No holding makes up more than 1.22% of the portfolio currently, making this quite well diversified relative to large market-cap weighted averages which are largely driven by just a selection number of stocks.

Sector Allocation and Weightings

The IMCG portfolio heavily leans towards the industrials sector, which constitutes 22.91% of its holdings. The technology and healthcare sectors follow closely, with 21.94% and 11.35% allocations, respectively.

Peer Comparison

When compared to similar funds like the iShares Russell Mid-Cap Growth ETF (IWP) and the Vanguard Mid-Cap Growth ETF (VOT), IMCG stands out due to its low expense ratio of 0.06% and a broader portfolio. Moreover, it has a lower turnover ratio and a higher average daily share volume, making it a preferred choice for many investors. IMCG has outperformed both as it tends to have a heavier allocation towards the large-cap side of mid-caps.

Pros and Cons of IMCG Investment

One of the key advantages of investing in IMCG is its focus on mid-cap companies with above-average growth rates. However, the fund's large-cap bias may disappoint investors seeking pure mid-cap exposure. It's certainly helped though over the last three years.

Conclusion

Investing in the iShares Morningstar Mid-Cap Growth ETF provides exposure to a diverse portfolio of growth-oriented mid-cap companies. However, investors should be mindful of the fund's larger-cap bias. Considering these factors, along with its low expense ratio and broader portfolio compared to its peers, IMCG may be a suitable investment for those seeking exposure to growth-oriented mid-cap companies.

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