Should Schwab U.S. Small-Cap ETF (SCHA) Be on Your Investing Radar?

Introduced on November 3, 2009, the Schwab U.S. Small-Cap ETF (SCHA) is a passively managed exchange-traded fund that aims to offer comprehensive exposure to the Small Cap Blend sector of the U.S. equity market.

This ETF is backed by Charles Schwab and has accumulated over $19.75 billion in assets, making it one of the largest ETFs aimed at tracking the Small Cap Blend sector in the U.S.

Understanding Small Cap Blend

Investing in small-cap companies, those with a market capitalization below $2 billion, can offer significant potential for growth, but it also comes with an increased level of risk.

Blend ETFs typically comprise a combination of growth and value stocks or a mix of both types, thereby presenting a diversified investment option.

Cost Considerations

The expense ratio is a crucial aspect that impacts an ETF's returns. Over the long term, lower-cost funds have the potential to outperform their pricier counterparts, all else being equal.

For the Schwab U.S. Small-Cap ETF, the annual operating expense stands at a mere 0.04%, making it one of the most cost-effective options available.

Currently, the ETF boasts a 12-month trailing dividend yield of 1.20%.

Sector Allocation and Key Holdings

Before investing, it's essential to review an ETF's holdings despite the inherent advantages like diversified exposure, which helps to mitigate single stock risk. Most ETFs maintain transparency by disclosing their holdings daily.

The Schwab U.S. Small-Cap ETF has the largest portion of its investments in the Financials sector, accounting for around 19% of the total portfolio. The top three sectors also include Industrials and Healthcare.

In terms of individual stocks, Affirm Holdings Inc Class A (AFRM) makes up approximately 0.35% of total assets, followed by notable companies like Stifel Financial Corp (SF) and Duolingo Inc Class A (DUOL). The ETF's top ten holdings represent about 2.84% of total assets.

Performance and Risk Profile

The SCHA aims to replicate the performance of the Dow Jones U.S. Small-Cap Total Stock Market Index, net of fees and expenses. This index captures the small-cap portion of the complete Dow Jones U.S. Total Stock Market Index, accessible to investors.

As of December 2, 2024, the ETF has gained approximately 20.33% this year and is up about 34.96% over the last year. Over the past 52 weeks, the ETF has traded within a range from $21.67 to $28.32.

The SCHA has a beta of 1.16 and a standard deviation of 22.56% for the trailing three-year period, marking it as a medium-risk investment choice. With around 1,744 individual holdings, the ETF effectively spreads out company-specific risk.

Exploring Alternatives

The Schwab U.S. Small-Cap ETF has received a Zacks ETF Rank of 2 (Buy), based on projected class returns, expense ratio, and momentum, indicating its suitability for investors interested in the Small Cap Blend segment. However, there are alternative ETFs that investors can also consider.

Two noteworthy options are the iShares Russell 2000 ETF (IWM) and the iShares Core S&P Small-Cap ETF (IJR), both of which track similar benchmarks. The iShares Russell 2000 ETF manages $81.16 billion in assets, whereas the iShares Core S&P Small-Cap ETF oversees $94.92 billion. IWM charges an expense ratio of 0.19%, while IJR's expense ratio is at 0.06%.

Conclusion

The Schwab U.S. Small-Cap ETF presents an excellent opportunity for long-term investors. Passively managed ETFs are widely favored by both retail and institutional investors due to their low-cost structure, transparency, flexibility, and tax efficiency.

To dive deeper into this ETF and explore other options, it is advisable to search for products that align with your investment goals and stay updated on the latest trends in the ETF investment landscape.

ETF, Investing, Performance