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

The Schwab U.S. Small-Cap ETF (SCHA - Free Report) was launched on November 3, 2009. This passively managed exchange-traded fund aims to give investors extensive exposure to the Small Cap Blend segment of the U.S. equity market. It is sponsored by Charles Schwab and has gathered more than $19.75 billion in assets, marking it as one of the largest ETFs in this market segment.

Why Focus on Small Cap Blend?

Investing in small-cap companies, which usually have a market capitalization under $2 billion, can present greater opportunities as well as risks. These companies can be more volatile compared to their larger counterparts, but they also offer substantial growth potential. The Small Cap Blend ETFs often mix growth and value stocks, holding a combination of both types alongside those that exhibit characteristics of both.

Cost Considerations

When evaluating an ETF, the expense ratio plays a vital role in determining its overall return. Cheaper funds tend to outperform their costlier rivals in the long run, all else being equal. The Schwab U.S. Small-Cap ETF boasts an impressively low annual operating expense of just 0.04%, making it one of the most affordable options available. Additionally, it provides a 12-month trailing dividend yield of 1.20%.

Sector Exposure and Key Holdings

Examining an ETF's holdings is critical before making an investment. SCHA offers diversified exposure, which reduces single-stock risk. It provides transparency by disclosing its holdings on a daily basis. The fund has the largest allocation in the Financials sector, accounting for roughly 19% of its portfolio. The other top sectors include Industrials and Healthcare.

In terms of individual stock investments, Affirm Holdings Inc Class A (AFRM - Free Report) makes up about 0.35% of total assets, followed by Stifel Financial Corp (SF - Free Report) and Duolingo Inc Class A (DUOL - Free Report). Together, the top 10 holdings constitute around 2.84% of the total assets managed by the ETF.

Performance and Risk Analysis

SCHA strives to mimic the performance of the Dow Jones U.S. Small-Cap Total Stock Market Index, accounting for management fees and expenses. The ETF has demonstrated noteworthy performance, with a gain of approximately 20.33% so far this year and an increase of about 34.96% over the past year (as of December 2, 2024). In the last 52 weeks, it has fluctuated between $21.67 and $28.32.

With a beta of 1.16 and a standard deviation of 22.56% over a trailing three-year period, SCHA is regarded as a medium-risk investment. The fund effectively diversifies company-specific risks through its holdings, which total around 1,744.

Exploring Alternatives

The Schwab U.S. Small-Cap ETF is assigned a Zacks ETF Rank of 2 (Buy), reflecting its expected asset class return, low expense ratio, and positive momentum, among other aspects. Thus, SCHA stands as an excellent choice for those aiming to delve into the Style Box - Small Cap Blend segment of the market. Investors might also consider alternatives such as the iShares Russell 2000 ETF (IWM - Free Report) and the iShares Core S&P Small-Cap ETF (IJR - Free Report), which track similar benchmarks. Notably, the iShares Russell 2000 ETF has $81.16 billion in assets, while the iShares Core S&P Small-Cap ETF surpasses this with $94.92 billion. IWM has an expense ratio of 0.19%, whereas IJR charges 0.06%.

Conclusion

Overall, the Schwab U.S. Small-Cap ETF is a compelling option for long-term investors. Passively managed ETFs are favored by both institutional and retail investors, thanks to their cost-effectiveness, transparency, flexibility, and tax efficiency. For more information regarding this product and other ETFs, it is advisable to screen for products that align with your investment goals and stay updated with trends in ETF investing.

ETF, Investing, Performance