While most mid-cap growth stocks don’t attract as much attention as their larger counterparts, they tend to offer greater growth potential, with a little less risk than small caps. Plus, the index funds in this Morningstar Category are generally less top-heavy than index funds that invest in large-growth stocks. Among these, Vanguard Mid-Cap Growth ETF (VOT) is one of the most compelling because it is one of the cheapest. On top of its considerable cost advantage, the fund effectively diversifies risk and applies generous buffering rules to mitigate unnecessary turnover. It earns a Morningstar Analyst Rating of Silver.
The fund targets stocks representing the faster-growing and more richly valued half of the U.S. mid-cap market and weights them by market capitalization. These firms have attractive outlooks, but there is always a risk that they won't live up to the market's expectations. Many of the fund's holdings have not yet established sustainable competitive advantages and may not hold up as well as large caps during market downturns.
Alex Bryan, CFA has a position in the following securities mentioned above: MTUM. Find out about Morningstar's editorial policies.