What is STXM? (Pros, Cons, and Strategies)

If you’re looking to diversify your investment portfolio with mid-cap stocks, the Strive Mid-Cap ETF (STXM) might be a compelling option. STXM has gained popularity for its focused approach towards mid-cap companies, which are generally seen as having more growth potential than large-cap stocks but with less volatility than small-cap stocks. Below, we delve into what STXM is, its benefits, drawbacks, and some effective strategies for investment.

What is STXM?

STXM is a mid-cap ETF managed by Strive Asset Management. It focuses on mid-cap companies, which are generally defined as those with a market capitalization between $2 billion and $10 billion.

STXM seeks to track the performance of the Strive Mid-Cap Growth Index. This index includes companies that demonstrate strong growth potential. Unlike small-cap stocks that come with high risk and large-cap stocks that offer stability but slower growth, mid-cap stocks in STXM balance growth potential with moderate risk.

Key Features of STXM

• Mid-cap Focus: Only includes companies with a market cap between $2 billion and $10 billion.
• Growth Potential: Invests in companies showing strong revenue and earnings growth.
• Diverse Sectors: Covers various sectors for diversification.

This distinctive focus on mid-cap stocks offers a sweet spot for investors aiming for growth without taking on the extreme risk associated with small-cap stocks.

STXM Composition

STXM includes a variety of mid-cap companies spread across sectors such as technology, healthcare, consumer goods, and financials. Notably, it includes firms like Etsy (ETSY), Cinchy (CCHY), and Alteryx (AYX).

This diversification helps mitigate risks associated with sector-specific downturns. The composition is dynamic, rebalanced periodically to ensure optimal growth potential and risk management.

Pros of STXM

Growth Potential

Mid-cap stocks often offer a better growth potential than large-cap stocks because they are in the growth phase of their business lifecycle. For investors with a medium to long-term horizon, this can translate into significant capital appreciation.

Diversification

By investing in various mid-cap stocks across different sectors, STXM provides a diversified portfolio that reduces sector-specific risks. This balanced mix can be particularly advantageous during market volatility.

Moderate Risk

Compared to small-cap stocks, mid-cap stocks generally have more established business models and therefore come with lower risk. STXM's focus on this segment helps investors enjoy the benefits of growth without the high volatility of small-cap investments.

Reasonable Expense Ratio

STXM comes with a relatively low expense ratio, making it cost-effective for long-term investors. The lower costs associated with this ETF can help maximize net returns over time.

Cons of STXM

Moderate Dividend Yield

Mid-cap stocks typically offer lower dividend yields compared to large-cap stocks. If you are looking for immediate income through dividends, STXM may not be the ideal choice.

Volatility

While less volatile than small-cap stocks, mid-cap stocks still carry more price fluctuations than large-cap stocks. Therefore, STXM might not be suitable for very conservative investors.

Sector Exposure Limits

Though diversified, the focus on mid-cap stocks means that sector exposure can still be limited compared to broader market ETFs. This could limit your exposure to sectors like utilities or staples that are more dominant in the large-cap space.

STXM Investment Strategies

STXM’s mid-cap focus offers a unique blend of growth and moderate risk, making it suitable for various investment strategies.

Long-term Growth Strategy

For investors who are willing to hold onto their investments for 5 to 10 years or more, STXM offers substantial growth potential. The balanced combination of different sectors and moderately high-growth stocks makes it an ideal candidate for long-term capital appreciation.

Diversification Strategy

By adding STXM to your portfolio, you achieve diversification not just in terms of sectors but also in market capitalization. This can be combined with large-cap ETFs or small-cap ETFs to form a well-rounded investment portfolio.

Regular Investment Plan

One effective strategy is to invest a set amount regularly in STXM, regardless of market conditions. This approach, known as dollar-cost averaging, can help in smoothening out market volatility and allows you to benefit from compound growth over time.

Rebalancing Portfolio

Periodic rebalancing is crucial when investing in STXM. Given the dynamic nature of mid-cap stocks, annual or semi-annual rebalancing can help lock in profits while maintaining an optimal risk-reward balance.

Conclusion

STXM offers a promising avenue for investors looking to capitalize on the growth potential of mid-cap companies. Its diversified portfolio and moderate risk profile make it a compelling option for long-term growth and balanced investment strategies. While it may not be the best choice for those seeking high dividend yields or ultraconservative investments, its balanced approach offers unique advantages. By incorporating STXM into your investment plans and employing suitable strategies, you can aim for substantial growth while managing risk effectively.