New York, NY – Investors looking for an alternative to traditional mid-cap funds may be intrigued by the Invesco Zacks Mid-Cap ETF (CZA), which holds a diverse portfolio of 100 mid-cap stocks selected based on short interest. While this may sound exciting, a closer look reveals some concerning factors that investors should consider before diving in.

One notable drawback of CZA is its relatively poor earnings momentum, which goes against the core philosophy of Zacks Investment Research. Additionally, despite having a somewhat acceptable long-term performance record, its high expense ratio of 0.72% raises questions about its overall value. As a result, some analysts are cautious in their assessment of CZA, rating it as a “hold” and suggesting that investors explore alternative options with lower costs.

The strategy behind CZA involves tracking the Zacks Mid Cap Core Index, which follows a specific set of criteria for stock selection. This methodology excludes Canadian stocks, focuses on mid-cap companies within specific market cap percentiles, and places emphasis on low short interest stocks. However, the effectiveness of this approach comes into question when analyzing the performance and composition of CZA’s holdings.

A key concern raised by analysts is the high concentration of Financials and Industrials sectors within CZA’s portfolio, accounting for over half of its total holdings. This lack of diversification could pose risks for investors, especially considering the fund’s limited number of holdings and absence of sector allocation caps. Additionally, the high turnover rate in the portfolio suggests that significant changes in sector exposures are common, adding another layer of uncertainty for investors.

When comparing CZA’s performance against its peers like the iShares Russell Mid-Cap ETF (IWR) and Vanguard Mid Cap ETF (VO), certain trends emerge. While CZA has delivered solid annualized returns since inception, recent performance data indicates underperformance compared to some competitors. This raises concerns about the fund’s ability to consistently deliver returns in various market conditions.

Analyzing CZA’s fundamentals by sub-industry reveals interesting insights into its profitability, growth profile, and volatility. The fund’s lower growth profile and less volatility compared to peers may appeal to conservative investors seeking stability. However, the disconnect between the fund’s strategy and the objectives of Zacks Investment Research raises questions about its long-term sustainability and alignment with investor expectations.

In conclusion, while CZA offers a unique approach to mid-cap investing, potential investors should carefully weigh the fund’s drawbacks and limitations before making any decisions. The analysis points out areas of concern that could impact the fund’s performance and investor returns over time, making it essential for investors to conduct thorough research and consider all available options before committing to CZA or any other mid-cap ETF.