VanEck Australia, Vice President, Institutional Business Development, John Caulfield talks about the VanEck Vectors S&P/ASX MidCap ETF (ASX:MVE), the underlying index, risk-return characteristics and the outlook for the mid-cap segment.
Jessica Amir: Hi I’m Jessica Amir for the Finance News Network. Today I’m with VanEck Australia’s, John Caulfield. Hi John and welcome back.
John Caulfield: Thanks Jessica, good to be back.
Jessica Amir: You’re an active provider of ETFs in Australia. But for those who are not really familiar with VanEck, just give us a quick introduction.
John Caulfield: VanEck is a global investment manager; we’ve been managing money since 1955. Over the last 12 years or so, we’ve built our ETF business that now has total assets of over $50 billion. We’ve been in Australia around five years and now have 17 ASX listed ETFs.
Jessica Amir: Before we talk about the VanEck Vectors S&P/ASX MidCap ETF (ASX:MVE), maybe you could just talk about the midcap segment?
John Caulfield: Midcaps actually incorporates a lot of the best attributes of large caps and small caps. And the active Aussie equity managers often find their best ideas in this segment. They’re often less prone to the influences of macro turmoil, being more domestically focused. Management have more sway in terms of what direction the company’s going. The average market cap is around $6.5 billion. The sector’s actually very diversified, across both stock and industry level and is often known as the sweet spot, of the investment universe.
Jessica Amir: Now can you tell us about the underlying index in a little more detail?
John Caulfield: The index is actually really simple. It’s part of the S&P/ASX index series and midcaps are defined as stocks number 51 to 100, on a market cap basis.
Jessica Amir: You’ve mentioned sectors, but can you just highlight sector exposure and performance as well?
John Caulfield: Over the last 15 years, midcaps have actually been the outstanding performer in the domestic market, returning over nine per cent per annum. And over three and five years, the sector’s actually outperformed the ASX200 by 3.7 and 6.06 per cent per annum, which is pretty substantial. At a sector level, you do get different exposures to your ASX 200, overweight consumer discretionary in materials, IT. And that means you’re exposed to different revenue sources, to your traditional large cap - stocks, which are obviously dominated by the financials.
Jessica Amir: What else do you think investors should be aware of?
John Caulfield: Investors’ portfolios generally need more exposure to the midcap sector, and better exposure. So the MidCap ETF, ASX ticker MVE, is actually the only ASX listed ETF providing this specific exposure. The fee for the ETF is 0.45 per cent per annum. And it obviously trades during the day on the ASX, at a price very close to the net asset value of the underlying portfolio.
Jessica Amir: What can you tell us about the risk/return characteristics?
John Caulfield: As I mentioned, the performance has been really good against both the large cap and the small cap universe. And there are a couple of reasons for this. Against their large cap blue chip peers, they do have more scope for growth. And against the small caps, they have better access to capital; tend to have better risk frameworks, better governance. Cash flows are a bit more stable and that means share price is a bit less volatile, as well.
And from a risk perspective, looking at standard deviation over the last five years, as you would expect, this sits in between large caps and small caps. But if you look at the sharp ratio, which is actually how much you get rewarded for the level of risk you take on, the midcap sector actually gives you over two times the return, to the small cap sector. And over five times the risk return to the large cap 20 index.
Jessica Amir: Lastly John, what are your parting words to investors today?
John Caulfield: As I mentioned, midcaps are really under represented segments in most portfolios, but a really important driver of returns and diversification. MVE is actually the only way in a single trade on the ASX that investors can access, a diversified portfolio of midcap stocks. And there’s a lot to like about them. They’re not too big, not too small and they really are the sweet spot of the investment universe.
Jessica Amir: Thanks so much for your time, John Caulfield.
John Caulfield: Thank you.