Should Schwab U.S. Dividend Equity ETF (SCHD) Be on Your Investing Radar?
Looking for broad exposure to the Large Cap Value segment of the US equity market? You should consider the Schwab U.S. Dividend Equity ETF (SCHD), a passively managed exchange traded fund launched on 10/20/2011.
The fund is sponsored by Charles Schwab. It has amassed assets over $40.69 billion, making it one of the largest ETFs attempting to match the Large Cap Value segment of the US equity market.
Why Large Cap Value
Large cap companies typically have a market capitalization above $10 billion. They tend to be stable companies with predictable cash flows and are usually less volatile than mid and small cap companies.
Carrying lower than average price-to-earnings and price-to-book ratios, value stocks also have lower than average sales and earnings growth rates. When you look at long-term performance, value stocks have outperformed growth stocks in nearly all markets. But in strong bull markets, growth stocks are more likely to be winners.
Costs
Expense ratios are an important factor in the return of an ETF and in the long term, cheaper funds can significantly outperform their more expensive counterparts, other things remaining the same.
Annual operating expenses for this ETF are 0.06%, making it one of the least expensive products in the space.
It has a 12-month trailing dividend yield of 3.36%.
Sector Exposure and Top Holdings
Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.
This ETF has heaviest allocation to the Information Technology sector--about 20.80% of the portfolio. Financials and Consumer Staples round out the top three.
Looking at individual holdings, Texas Instrument Inc (TXN) accounts for about 4.47% of total assets, followed by Pepsico Inc (PEP) and Home Depot Inc (HD).
The top 10 holdings account for about 40.77% of total assets under management.
Performance and Risk
SCHD seeks to match the performance of the Dow Jones U.S. Dividend 100 Index before fees and expenses. The Dow Jones U.S. Dividend 100 Index is designed to measure the performance of high dividend yielding stocks issued by U.S. companies that have a record of consistently paying dividends, selected for fundamental strength relative to their peers, based on financial ratios.
The ETF has lost about -6.41% so far this year and is down about -3.09% in the last one year (as of 11/10/2022). In the past 52-week period, it has traded between $66.43 and $81.94.
The ETF has a beta of 0.90 and standard deviation of 23.56% for the trailing three-year period, making it a medium risk choice in the space. With about 104 holdings, it effectively diversifies company-specific risk.
Alternatives
Schwab U.S. Dividend Equity ETF carries a Zacks ETF Rank of 3 (Hold), which is based on expected asset class return, expense ratio, and momentum, among other factors. Thus, SCHD is a sufficient option for those seeking exposure to the Style Box - Large Cap Value area of the market. Investors might also want to consider some other ETF options in the space.
The iShares Russell 1000 Value ETF (IWD) and the Vanguard Value ETF (VTV) track a similar index. While iShares Russell 1000 Value ETF has $52.18 billion in assets, Vanguard Value ETF has $100.43 billion. IWD has an expense ratio of 0.18% and VTV charges 0.04%.
Bottom-Line
Passively managed ETFs are becoming increasingly popular with institutional as well as retail investors due to their low cost, transparency, flexibility and tax efficiency. They are excellent vehicles for long term investors.
To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.
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Schwab U.S. Dividend Equity ETF (SCHD): ETF Research Reports
Texas Instruments Incorporated (TXN) : Free Stock Analysis Report
The Home Depot, Inc. (HD) : Free Stock Analysis Report
PepsiCo, Inc. (PEP) : Free Stock Analysis Report
Vanguard Value ETF (VTV): ETF Research Reports
iShares Russell 1000 Value ETF (IWD): ETF Research Reports
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