This Mid-Cap Growth ETF Delivers 11.5% Returns Without Betting 40% of Your Portfolio on Seven Tech Stocks
The Magnificent Seven stocks now represent 35% to 40% of the S&P 500, creating historically high concentration risk. SPDR S&P 400 Mid Cap Growth ETF (NYSEARCA:MDYG) offers a middle path, delivering growth exposure while sidestepping mega-cap tech dominance.
Built for Diversified Growth Exposure
MDYG takes a fundamentally different approach to growth investing than tech-heavy indexes. The fund allocates over a quarter of assets to industrials, providing exposure to the infrastructure and manufacturing renaissance that’s reshaping the American economy. Technology holdings take a supporting role rather than dominating the portfolio, focusing on specialized players solving specific problems—optical networking, semiconductor equipment, and cloud infrastructure—rather than the consumer-facing mega-caps that drive traditional growth funds.
The fund targets the sweet spot of mid-cap growth: companies that have proven their business models work but still have room to expand meaningfully. The 0.15% expense ratio positions MDYG competitively among mid-cap growth ETFs, keeping costs low enough that they won’t meaningfully erode returns over time. The modest dividend yield, while not the fund’s primary attraction, provides a small cash return that can be reinvested to compound growth or used to offset the expense ratio.
As one Reddit investor explained: “I currently hold SCHG for (large) growth but I’m also considering VBK (small) & MDYG (medium) just to cover everything.” This captures MDYG’s primary role: completing a size-diversified growth portfolio without doubling down on mega-cap concentration.
Performance That Trades Explosive Gains for Stability
MDYG’s 11.5% gain over the past year demonstrates the fund’s ability to deliver solid growth, though it trailed the Nasdaq-100’s explosive 23% return. This performance gap reveals the fundamental tradeoff investors make when choosing MDYG: accepting lower peak returns during mega-cap rallies in exchange for avoiding the concentration risk of having 35-40% of portfolio value tied to seven companies. The diversification strategy deliberately sacrifices maximum upside to reduce the portfolio’s dependence on continued AI enthusiasm driving tech valuations higher.
The divergence becomes more pronounced over longer periods, with MDYG’s 41.6% five-year return falling well short of the Nasdaq’s near-doubling. The underperformance isn’t a flaw – it’s the explicit cost of diversification, the price investors pay to avoid betting everything on seven stocks.
Yet 2026 has brought a shift—the ETF has outpaced both major indexes as markets rotate into mid-caps, supported by analyst forecasts for double-digit earnings growth among S&P 400 companies.
The Tradeoffs You Accept
MDYG’s diversification strategy extracted a steep price during the AI rally—a 53 percentage point performance gap versus QQQ over five years. Investors who chose mid-cap diversification over mega-cap concentration sacrificed substantial gains.
The fund’s industrial tilt fundamentally changes what drives returns compared to pure technology plays. When defense spending increases or infrastructure bills pass, MDYG’s industrial holdings benefit directly, while tech-heavy funds remain dependent on software and semiconductor cycles. This sector diversification means MDYG responds to a broader range of economic catalysts—government contracts, manufacturing reshoring, and capital equipment spending—rather than betting exclusively on continued technology sector dominance. The 0.62% dividend yield reflects this industrial exposure, as manufacturers and defense contractors typically return more cash to shareholders than high-growth tech companies that reinvest everything in expansion.
Who Should Avoid This ETF
Maximum growth seekers during bull markets should stick with concentrated large-cap tech funds. MDYG’s diversification will consistently lag when the Magnificent Seven rally. Investors with less than a 10-year time horizon who need peak performance should accept concentration risk rather than dilute returns with mid-cap exposure.
Consider SCHM as a Broader Alternative
Schwab U.S. Mid-Cap ETF (NYSEARCA:SCHM) tracks the entire mid-cap universe rather than just growth stocks, offering greater diversification across value and growth styles. The fund’s rock-bottom 0.04% expense ratio costs 73% less than MDYG annually while providing deeper liquidity through its $12.3 billion asset base. SCHM also delivers more than double the dividend yield for investors seeking income alongside growth.
MDYG delivers mid-cap growth exposure for investors worried about excessive big tech concentration, accepting lower peak performance during mega-cap rallies in exchange for broader diversification across the growth spectrum.