Evaluating Funds Part II: Nothing Middling About Mid Caps

Never forget these two axioms:

Money frees us, but its pursuit may enslave us.

It’s not how much you have at the end; it’s how much you could have made.


The last time we spoke about funds, we went over the options for index funds for the S&P 500. I then teased the possibility of more than just the bluest of blue chips and the largest of the large caps to help juice the total returns of your investment portfolio.

So here we go…

Think of the smaller companies out there that will eventually grow bigger and may become large caps over time. Who wouldn’t want to capture the (possibly) double digit growth year after year of such companies? And rather than hunt for these companies yourself spending dozens to hundreds of hours of research, there’s a far more efficient (both in time and cost—material and opportunity) way to steer some of this growth into your long term portfolio.

Welcome to mid cap index funds…

Believe it or not, there are funds that track the vast array of companies in the US that range from $2 billion to $10 billion in value. That sounds like a stratospherically high value for a company,so surely you would have heard of these companies. But, in reality, unless you follow the market closely, you would not have. Red Hat, Autodesk, Amphenol, ONEOK Inc, and Roper Technologies are some of the better known mid cap companies If you haven’t heard of these, there’s no chance you would have hears of the lesser known mid cap companies.

There is/was virtually an industry standard of mid cap index funds—-the highly regarded

Vanguard Mid-Cap Index Fund Investor Shares (VIMSX) which is apparently so highly regarded that Vanguard closed the fund to new investors due to the massive influx of capital flowing into it (or crazy fat stacks of cash as the kids call it). Therefore, we must now focus on other mid cap index funds.

Here they are:

  1. Vanguard Mid Cap Index Fund Admiral Shares (VIMAX) Vanguard Mid CAp ETF (VO) traded at $182.91 as of the end of 1/22/19. The ten year return has been 13.87% annually on average. (This translates to $10,000 being invested in 2008 growing to $36,640.22 today.) There is a dividend (always greatly appreciated) of 1.8%.The expense ratio is a highly favorable 0.05% (meaning $5 per $10,000 invested). Of note, there is a $3,000 minimum initial investment after which any amount of  money can be invested in the fund.
  2. Vanguard Mid Cap ETF (VO) traded at $147.69 as of the end of 1/22/19. The ten year return has been 13.87% annually on average. (This translates to $10,000 being invested in 2008 growing to $36,639.71 today.) There is a dividend (always greatly appreciated) of 1.84%.The expense ratio is a highly favorable 0.05% (meaning $5 per $10,000 invested). Of note, there is no minimum initial investment for this fund.

And that’s about it…

Yes, there are other mid cap index funds.

No, I cannot recommend them.

The top few non-Vanguard mid cap index funds are (expense ratios in parentheses) are the Dreyfus Mid Cap Index Fund (0.50%), the Fidelity Spartan Mid Cap Index Fund Investor Class (0.22%), and the Columbia Mid Cap Index Fund Class A (.0.45%). Feel free to click the links and see the specifics of each of these funds.

But, realize this before you take the plunge into any of these funds, you’re paying 400%-1,000% more for the same product with the hopes of the same returns. Would you pay four times as much for the same house? Would you spend ten times as much for the same car?

If not, then why are spending so much more on your index fund? As stated before (and likely many more times in the future), equities are the only item where people often spend far more than they need to—often willingly and stubbornly refusing to change to something cheaper as if recognizing a mistake and correcting it is a sin rather than a virtue like we would be urged (and even celebrated for) to do at work.

Bizarre, but true…

When comparing the above returns to what the S&P 500 would have done by itself, keep in mind that the average total return for the S&P 500 dating from January 2008-December 2018 was 7.185%. (This improves dramatically to 12.603% if you started putting the money at the end of 2008 in December of that year after the financial crisis had hit fully and the market had already sunk significantly with more to come until it hit bottom in March 2009.)  

I’d love to hear from any and all of you about your thoughts, so we can all learn from one another.

Please spread the word about this blog to your friends (real and virtual), family, and colleagues. Talk to you soon.

Until next time…