"Currently, the ETF pays a hefty 3.9% yield. That's meaningfully more than other ETFs and options, like the VOO, and SPY which track the S&P 500 which pay out 1.25%. But that conservatism has come at a price. The S&P 500 has just hit an all-time high and is up 14% YTD already, while the Nasdaq is doing even better, just hitting 18% YTD returns. And during this bull market the Schwab US Dividend Equity ETF has more or less returned 0.0% year-to-date. Exactly flat."
"It just comes down to the assets SCHD holds and how they structure the ETF. First, no single stock can exceed 4% of the index's total weight. Take a look at the top four positions below: Most have had a pretty good year! But unfortunately, now all of them exceed the 4% threshold so in the upcoming rebalancing of the ETF will have to be trimmed out. Functionally, this can limit the ETF's exposure to stocks or sectors performing well each year."
Schwab US Dividend Equity ETF (SCHD) holds nearly $70 billion in assets and yields 3.9%, appealing to income-seeking and conservative investors. The ETF lagged major indices, remaining flat year-to-date while the S&P 500 rose 14% and the Nasdaq 18%. A 4% cap on individual holdings forces trimming of positions that outperform, limiting exposure to strong-performing stocks and sectors. The fund also maintains poorly performing names like Target, PepsiCo, and UPS, which have sizeable declines. Over five years SCHD returned 39%, notably below the S&P 500’s 93%, making income benefits arguably insufficient given structural constraints and underperformance.
Read at 24/7 Wall St.
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