Should the 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 - Free Report) is a passively managed exchange-traded fund. Its goal is to offer investors broad exposure to the Small Cap Blend segment of the U.S. equity market.

Sponsoring this fund is Charles Schwab, and it has successfully gathered over $19.75 billion in assets, establishing itself as one of the largest ETFs that target the Small Cap Blend category in the U.S. market.

Why Consider Small Cap Blend?

Investing in small-cap companies, which typically have market capitalizations of less than $2 billion, often involves balancing higher potential rewards with increased risks. Small-cap blend ETFs tend to mix growth and value stocks, including those that demonstrate characteristics of both.

Cost Considerations

Expense ratios play a crucial role in determining an ETF's returns. Over the long term, low-cost funds can outperform their higher-cost peers if other factors remain equal. The SCHA boasts an Annual Operating Expense of only 0.04%, ranking it among the most affordable ETFs available.

Additionally, this ETF has achieved a trailing 12-month dividend yield of 1.20%.

Sector Exposure and Key Holdings

Before making an investment, it's essential to scrutinize an ETF's holdings, despite the inherent advantages of diversified exposure that ETFs offer, which lessens the risks linked to individual stocks. Most ETFs maintain transparency by revealing their holdings daily.

The Schwab U.S. Small-Cap ETF allocates a significant portion of its assets—nearly 19%—to the Financials sector, while the Industrials and Healthcare sectors are also prominent in its portfolio.

Among the individual stocks, Affirm Holdings Inc Class A (AFRM - Free Report) represents about 0.35% of the total fund assets, closely followed by Stifel Financial Corp (SF - Free Report) and Duolingo Inc Class A (DUOL - Free Report). The ETF’s top ten holdings amount to approximately 2.84% of the total assets under management.

Performance and Risk Assessment

SCHA aims to replicate the performance of the Dow Jones U.S. Small-Cap Total Stock Market Index, adjusting for fees and expenses. This index effectively includes the small-cap segment of the broader Dow Jones U.S. Total Stock Market Index that is available to investors.

Thus far this year, the ETF has increased around 20.33% and has shown a total one-year gain of approximately 34.96% (as of December 2, 2024). Its price fluctuations over the past year have ranged from $21.67 to $28.32.

Furthermore, with a beta of 1.16 and a standard deviation of 22.56% over the trailing three years, SCHA stands as a medium-risk option in its category. By holding approximately 1,744 different stocks, the ETF effectively mitigates company-specific risk.

Potential Alternatives

With a Zacks ETF Rank of 2 (Buy), the Schwab U.S. Small-Cap ETF is positioned favorably based on anticipated asset class returns, expense ratio, and momentum among other metrics. This makes SCHA an attractive selection for investors aiming to penetrate the Style Box - Small Cap Blend market segment. However, several alternative ETFs also warrant consideration.

For instance, the iShares Russell 2000 ETF (IWM - Free Report) and the iShares Core S&P Small-Cap ETF (IJR - Free Report) track similar benchmarks. Currently, IWM holds about $81.16 billion in assets, while IJR manages roughly $94.92 billion. The iShares Russell 2000 ETF features an expense ratio of 0.19%, while the iShares Core S&P Small-Cap ETF charges 0.06%.

Conclusion

For long-term investors, passively managed ETFs, like the Schwab U.S. Small-Cap ETF, serve as an excellent investment vehicle. They are particularly popular among both institutional and retail investors, largely due to their low fees, clear transparency, flexibility, and tax efficiency.

To explore more about this ETF and other available products, consider evaluating options that align with your investment goals and accessing articles about new trends in the ETF investment landscape.

ETF, Investment, Finance