Mid-Cap Index Funds Aren’t All Alike. Look Under the Hood.

Palantir stock hasn’t been in the iShares Core S&P Mid-Cap ETF at all this year. It remained in the iShares Russell Mid-Cap ETF until June. (FABRICE COFFRINI/AFP via Getty Images)

Index-fund investors aren’t supposed to worry about picking individual stocks, but when it comes to those tracking mid-cap companies, it isn’t that simple. The choices investors make can have a big effect on returns.

Among the most popular mid-cap exchange-traded funds, those benefiting from bets on a few hot tech and crypto-adjacent stocks such as Palantir Technologies, Robinhood, and Coinbase have far outperformed at least one prominent fund that doesn’t, according to a new report by CFRA.

The discrepancy highlights how seemingly small differences in index methodology can translate into significant results for investors. And that even when picking index funds, it pays to look under the hood.

CFRA found big discrepancies among the returns of the market’s three largest mid-cap ETFs. The $193 billion Vanguard Mid-Cap ETF has returned 10.6% year to date through Friday, according to Morningstar data. The $44 billion iShares Russell Mid-Cap ETF isn’t far behind at 8.5%, while the $99 billion iShares Core S&P Mid-Cap ETF has returned just 3.9%.

What gives? The issue is that what counts as a mid-cap stock has always been somewhat subjective. The criteria used by S&P Global to separate mid- from large-caps in putting together its index, tends to skew the benchmark, and the fund that tracks it, toward small companies, CFRA said.

“The target market-cap range for [iShares Core S&P Mid-Cap] is lower…and therefore it underperforms relative to these peers in an environment where large caps outperform,” wrote analyst Aniket Ullal in a note last week. S&P Global said it didn’t comment on issues involving specific investment products.

The S&P MidCap 400 Index is designed as a complement to the large-cap S&P 500 , targeting the next 400 largest companies by market value. The approach leads to a portfolio with stocks whose market capitalizations range between about $8 billion and $22 billion, according to CFRA.

The Russell Midcap index, by contrast, targets the bottom 800 companies in the Russell 1000 index of the market’s most valuable companies. That approach allows the index to include companies with values up to nearly $90 billion.

For its part, the Vanguard fund targets companies in the 70th to 85th percentile by market capitalization, according to CFRA. The fund’s top holdings have market caps of around $100 billion.

A definition of mid-caps that tilts more toward smaller companies means the iShares Core S&P Mid-Cap ETF has missed out on some stocks that have zoomed up in value this year, according to Ullal. The other two funds, meanwhile, have benefited from those gains.

Palantir, for instance, which was added to the S&P 500 in September, hasn’t been in the portfolio of the iShares Core S&P Mid-Cap ETF at all in 2025. But the stock, which has seen its market capitalization surge from around $60 billion to more than $370 billion in the past 12 months, lingered in the portfolio of the Vanguard Mid-Cap ETF until March. It remained in the iShares Russell Mid-Cap ETF until June, helping boost performance.

Robinhood, Roblox, Coinbase and Howmet Aerospace are other strong performers in the other funds that investors in iShares Core S&P Mid-Cap ETF have missed the boat on, CFRA found.

While missing out on returns can be frustrating, there are some reasons for investors to take consolation. Investors who own the iShares Core S&P Mid-Cap ETF, and pair it with another fund that tracks the S&P 500 shouldn’t have missed out on much, if any returns.

At the same time stocks like Palantir were removed from the mid-cap fund’s portfolio, they would have been added to investors’ large-cap funds. Doubling exposure, by keeping the stock in two funds at once, would have created its own problems.

It is also worth noting that no matter the methodology, the performance differences tend to even out over time. Over the past five years, the iShares Core S&P Mid-Cap ETF has returned 13.4% a year on average, compared with about 12.8% for the other two funds.

Write to Ian Salisbury at ian.salisbury@barrons.com