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 - Free Report) is an exchange-traded fund that passively tracks the Small Cap Blend sector of the U.S. equity market.

Sponsored by Charles Schwab, this ETF has gathered over $19.75 billion in assets, positioning it as one of the largest options available for investors interested in the Small Cap Blend investment style.

Understanding Small Cap Blend

Investing in small-cap companies, which usually have market capitalizations below $2 billion, presents a mix of opportunities and risks. The Small Cap Blend category includes a diverse range of stocks, encompassing both growth and value characteristics.

Cost Structure

When choosing an ETF, one key aspect is the expense ratio. Lower expense ratios can lead to better long-term returns compared to higher-cost alternatives when all factors are equal. SCHA boasts an impressive annual expense ratio of just 0.04%, making it one of the most cost-effective funds in its category.

The ETF currently offers a 12-month trailing dividend yield of 1.20%.

Sector Allocation and Major Holdings

Before making investments, it's important to analyze an ETF's underlying holdings. Though ETFs provide diversified exposure that reduces the risk associated with individual stocks, understanding the sector allocations can be crucial. This ETF allocates approximately 19% of its assets to the Financials sector, while Industrials and Healthcare make up the next two largest sectors.

Among its top holdings, companies such as Affirm Holdings Inc Class A (AFRM - Free Report) represent about 0.35% of the total assets. Other significant holdings include Stifel Financial Corp (SF - Free Report) and Duolingo Inc Class A (DUOL - Free Report). The ETF's top ten holdings contribute around 2.84% of its total asset base.

Performance and Risk Assessment

The primary goal of SCHA is to track the performance of the Dow Jones U.S. Small-Cap Total Stock Market Index before fees and expenses. This index reflects the small-cap segment of the broader U.S. market.

As of December 2, 2024, the ETF has seen a strong performance with a 20.33% return year-to-date and an impressive 34.96% return over the past year. The ETF has traded within a 52-week range of $21.67 to $28.32.

SCHA has a beta of 1.16, suggesting that it tends to be more volatile than the market, and its standard deviation over the last three years is 22.56%, indicating moderate risk. With approximately 1,744 holdings, the ETF effectively spreads out company-specific risk.

Considering Alternatives

The Schwab U.S. Small-Cap ETF has received a Zacks ETF Rank of 2 (Buy), which is based on anticipated returns for the asset class, expense ratios, and market momentum, among other factors. Hence, SCHA is a notable choice for investors looking to access the Small Cap Blend portion of the equity market. However, other ETFs also merit consideration.

Investors might also look into the iShares Russell 2000 ETF (IWM - Free Report) and the iShares Core S&P Small-Cap ETF (IJR - Free Report), which track comparable indices. IWM has around $81.16 billion in assets under management, while IJR comes in at about $94.92 billion. The expense ratio for IWM is 0.19%, and for IJR, it is 0.06%.

Conclusion

For long-term investors, passively managed ETFs like SCHA represent a compelling option. Their low costs, transparency, and tax efficiency make them popular among both retail and institutional investors.

If you want to learn more about this and other ETFs, consider screening products that align with your investment goals and reviewing the latest insights in the world of ETF investing.

ETF, Investment, Performance