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

Launched on November 3, 2009, the Schwab U.S. Small-Cap ETF (SCHA) is an exchange-traded fund (ETF) that aims to provide broad exposure to the Small Cap Blend segment of the U.S. equity market.

This fund is sponsored by Charles Schwab and has grown to have assets exceeding $19.75 billion, making it one of the largest ETFs focused on the Small Cap Blend sector in the United States.

Why Small Cap Blend?

Investing in small cap companies, defined as those with market capitalizations below $2 billion, can offer greater potential returns, but it also comes with increased risk. The Small Cap Blend strategy typically encompasses a mixture of both growth and value stocks, including those that show characteristics of both investment styles.

Costs

When considering ETFs, the expense ratio is a crucial component as it directly impacts an investor's returns over the long term. Generally, lower-cost funds are likely to outperform their more expensive counterparts, given similar circumstances. The annual operating expenses for the Schwab U.S. Small-Cap ETF are just 0.04%, making it one of the most cost-effective options in its category.

Additionally, it currently offers a 12-month trailing dividend yield of 1.20%.

Sector Exposure and Top Holdings

Before investing, it is essential to examine an ETF's holdings, as they provide insights into what you are investing in. While ETFs offer diversified exposure to minimize single stock risk, understanding the distribution of sectors within the portfolio is crucial. This ETF allocates approximately 19% of its assets to the Financials sector, followed by the Industrials and Healthcare sectors.

In terms of individual holdings, Affirm Holdings Inc Class A is around 0.35% of total assets, alongside companies like Stifel Financial Corp and Duolingo Inc Class A. The top ten holdings constitute about 2.84% of the total assets under management.

Performance and Risk

SCHA aims to replicate the performance of the Dow Jones U.S. Small-Cap Total Stock Market Index before accounting for fees and expenses. This index captures the small-cap segment available to investors in the broader U.S. stock market.

So far this year, the ETF has experienced a gain of approximately 20.33%, and its performance over the last year shows an increase of about 34.96% (as of December 2, 2024). Throughout the past 52 weeks, SCHA has seen its price fluctuate between $21.67 and $28.32.

With a beta of 1.16 and a standard deviation of 22.56% for the trailing three-year period, SCHA represents a medium-risk option within the small cap investment space. The ETF holds around 1,744 different stocks, significantly spreading out the risk associated with any single company.

Alternatives

The Schwab U.S. Small-Cap ETF carries a Zacks ETF Rank of 2 (Buy), which is determined by factors such as anticipated asset class returns, expense ratios, and market momentum. Therefore, SCHA could be an excellent choice for investors looking to tap into the Small Cap Blend market. However, there are other ETFs that investors could also consider.

Options like the iShares Russell 2000 ETF (IWM) and the iShares Core S&P Small-Cap ETF (IJR) closely mirror SCHA’s objectives. The iShares Russell 2000 ETF boasts $81.16 billion in assets, while the iShares Core S&P Small-Cap ETF has $94.92 billion. IWM has an expense ratio of 0.19%, whereas IJR costs 0.06%.

Bottom Line

The Schwab U.S. Small-Cap ETF serves as an excellent investment vehicle for long-term holders. Passively managed ETFs like SCHA are favored by both retail and institutional investors due to their cost-effectiveness, transparency, flexibility, and tax efficiency.

For further information about this ETF and other similar products, explore your investment options based on your specific goals, and stay updated through reliable financial news sources.

ETF, Investment, Finance