In short, mid-caps can offer greater upside potential than large-caps and less volatility than small-caps. According to Morningstar, mid-cap growth has been the single best performing corner of the domestic market over the past five years — raking in average annual returns in excess of +19%.

Considering the cyclicality of the markets and the relative valuation against other asset classes, now may not be the best time to overweight this particular group. However, long-term investors looking to build a well-balanced portfolio would be wise to include some exposure to mid-cap stocks. 

And when it comes to selecting an actual building block to represent this group, I think Vanguard Mid-Cap ETF (AMEX: VO, $75.93) is a great option.

Tracking the MSCI U.S. Mid-Cap 450 Index, the fund should appeal to one-stop shoppers. The portfolio straddles the border between growth and value and covers a diversified swath of more than 400 stocks — and its top ten holdings only represent a miniscule 5.8% of assets. Shareholders will have a stake in companies like graphics chip maker Nvidia (Nasdaq: NVDA), money manager T. Rowe Price (Nasdaq: TROW) and offshore oil & gas driller Noble (NYSE: NE).

Overall, the portfolio carries an average earnings growth rate north of +20% and is heavily weighted towards the financial, consumer discretionary, and information technology sectors. And, of course, the hallmark of any Vanguard fund is a low expense ratio — VO charges a razor-thin 0.13% of assets.

As you might expect, that built-in advantage gives the fund a considerable head-start against competitors. And over the past three years, VO has delivered average annual gains of +12.8% — outpacing the S&P 500, as well as 99% of its rivals in the mid-cap blend category.

With all this in mind, I will be monitoring the fund closely as a possible addition to my "Buy-and-Hold" Portfolio. This model portfolio is available exclusively to paid subscribers of my premium exchange-traded funds (ETF) newsletter — The ETF Authority.

Good investing!

Income Security of the Month
Our "Income Security of the Month" for November 2007 invests in a fast-growing overseas market that does not get much exposure in the mainstream financial press. And although it typically makes enormous annual dividend payments — an impressive $7.12 per share last year alone — this fund is perhaps most appealing for its total return potential. Specifically, the fund has delivered average total returns of +47.0% per year since 2004. 

Undervalued Stock of the Month
Our favorite value stock for November 2007 has pulled back
-51% from its highs. As a result, bargain hunters now have a rare opportunity to pick up one of the world's most dominant companies with a "Price Appreciation Potential" of +91%.

Top 10 Stocks for 2007 and Beyond
In this 25-page report, we bring you an in-depth look at our ten favorite investing ideas for the remainder of 2007 and beyond.