Schwab U.S. Small-Cap ETF SCHA encapsulates the U.S. small-cap market for a low fee. Its diversified portfolio mitigates stock-specific risk, and a turnover-conscious approach minimizes trading costs that can plague other small-cap index funds. These considerations earn the fund a Morningstar Medalist Rating of Silver.
The fund tracks the Dow Jones U.S. Small-Cap Total Stock Market Index, an expansive portfolio capturing roughly 1,750 small- and micro-cap U.S. stocks. The index requires constituents to meet float and liquidity standards to ensure it’s easy to track. These measures help minimize transaction costs that can run high in the relatively illiquid small-cap market. 
The portfolio is market-cap weighted, which is an efficient approach because it harnesses the market’s consensus opinion of each stock’s relative value. Stocks that grow in size take up a larger share of the portfolio, while smaller companies that may be struggling take on a less important role. Market-cap weighting also helps rein in turnover and promotes diversification. Annual turnover has averaged 12% since the fund’s 2009 inception, about one-fourth its average peer. The top 10 holdings account for just 3% of the portfolio, minimizing stock-specific risk. 
The fund’s sector allocations and style orientation usually mimic the Morningstar Category average, which helps translate the fund’s low fee into a distinct performance advantage. As of April 2023, no sector weights deviated from the category average by more than two percentage points. 
The fund features smaller companies than many peers. This may contribute to excess volatility in the already risky small-cap arena. Historically, the extra risk of small caps has translated into better long-term performance than their larger counterparts. This fund’s 0.04% fee and turnover-conscious approach help it capitalize on small-caps’ long-term performance advantage. For the 10 years through April 2023, it outpaced the category average by 85 basis points annually.

Analyst Rating

Inexpensive U.S. small-cap exposure.

Analyst

Zachary Evens

MicroStrategy Incorporated

Nutanix

Comfort Systems USA

Wingstop

Texas Roadhouse

Natera

Tenet Healthcare

e.l.f. Beauty

Core & Main

Weatherford International PLC

The fund tracks the Dow Jones U.S. Small-Cap Total Stock Market Index, which is an excellent representative of the U.S. small-cap opportunity set. Indexing small-cap stocks can be a challenge because they are less liquid than their larger peers, but these challenges are mitigated by index rules that promote investability. The fund earns an Above Average Process Pillar rating.

Above Average

Process

Schwab has strengthened its equity index management team over the past few years, under the leadership of Chris Bliss. It earns an Above Average People Pillar rating.
Bliss leads Schwab's equity index team. Since joining Schwab from BlackRock in 2016, Bliss has strengthened the team by increasing specialization and automating more of the managers' workflow. This allows the managers to spend less time on routine tasks and helps them better identify and resolve issues that require their attention. Ferian Juwono, Sabya Sinha, Jeremy Brown, and Agnes Zau join Bliss as named managers on this fund. The named managers have support from associate managers who help the team prepare for index rebalances.
The team looks for ways to slightly improve returns by handling some corporate actions differently from the index. The managers can take advantage of those opportunities when they occur, under tight tracking-error constraints.
Schwab compensates its managers based on tracking error and compliance with risk management, which helps align their interests with investors'.

People

Under new but familiar leadership, Schwab Asset Management Solutions maintains its Above Average Parent Pillar rating. 

After the former Schwab CEO was named president of parent Charles Schwab Corporation in 2022, Omar Aguilar, a Schwab CIO since 2011, was promoted to CEO while retaining his CIO role. Under Aguilar's leadership, Schwab remains focused on core-oriented strategies: More than 95% of the firm's fund assets under management are in low-cost index products that are suitable for the biggest portions of investors' portfolios. Index-tracking remains are par with the best teams in the business.

Recent strategic initiatives show a desire to grow in an increasingly competitive landscape. Forays into direct indexing—which customizes separate accounts through tax-loss harvesting, values-based requests, or other client preferences—as well as some new launches, such as Schwab Municipal Bond ETF, fit the firm's strategic focus and are natural extensions of its capabilities. However, other recent launches in more-niche asset classes, including Schwab Crypto Thematic ETF, contrast previous refusals to enter trendy markets. 

Schwab benefits from its association with its parent's brokerage business. This arrangement and efficient operation allow funds to grow quickly and keep fees in line with larger competitors. Historically, Schwab has been quick to match competitor fee cuts and now sports a 0.09% asset-weighted average fee across its mutual funds and ETFs.

Parent

Schwab U.S. Small-Cap ETF

SCHA tracks a market-cap-weighted index of US stocks ranked 751-2,500 by market cap.

Designed to provide broad exposure to the Small Cap Blend segment of the US equity market, the Schwab U.S. Small-Cap ETF (SCHA) is a passively managed exchange traded fund launched on 11/03/2009.

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

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The Schwab U.S. Small-Cap ETF has underperformed the S&P500, but a breakout from a long consolidation phase could signal a catch-up. The Schwab U.S. Small-Cap ETF is a better performing fund than the Russell 2000 ETF. SCHA is a good option to play this breakout. However, it may be best to wait for the monthly close to confirm strength.

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The small-cap large-cap ratio which has been beaten down could mean-revert as the interest rate trajectory shifts next year. Cheap valuations are an added bonus. SCHA, a diversified small-cap offering, is seen as a potential way to play this trade and we measure its qualities versus its largest peer-IJR. The weekly charts suggest that some caution may be warranted for those contemplating a long position at this juncture.

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Small-cap stocks are considered safer and better plays if political issues or economic turmoil creep into the picture as the pint-sized stocks generate most of their revenues from the domestic market.

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The Schwab US Small-Cap ETF (SCHA) stock has been in a consolidation phase since July. It was trading at $40 on Friday, down by more than 25% from the highest level this year.

Schwab US Small-Cap (SCHA) ETF: Ripe for a bearish breakout

Schwab U.S. Small-Cap ETF has a portfolio of 1,750 small-cap U.S. stocks and has been rangebound in 2023. Investors should be aware of the volatility of small-cap stocks, which can be more volatile than large-cap stocks. SCHA's valuation is reasonable but there is potential downside risk due to a possible economic recession in 2024.

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Small-cap stocks are risky but potentially high-growth investments. Schwab U.S. Small-Cap ETF is a safer investment option for entering this segment but we foresee risks for retail value investors. Small-cap stocks are vulnerable to various factors, including financial maneuvers, political changes, and macroeconomic issues, and they have fewer resources to cope with disasters compared to larger companies. Many of the positives about small-cap stocks are already factored into the high price of the ETF shares with limited opportunities for growth that benefits investors at this time.

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The gap between the valuations of the large-cap S&P 500 and the small-cap S&P 600 index is wider than it's been since 2001. Small-cap stocks are historically cheap right now, while large-cap stocks aren't.

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SCHA tracks an Index of 1,750 small-cap stocks. The ETF has $13.34 billion in assets under management, likely due to its category-leading 0.04% expense ratio. However, SCHA consistently underperforms because it holds too many low- or non-profitable stocks. ETFs that select from a more narrow stock universe, like IJR and VB, are better choices.

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A recent MarketWatch article discussed a simple portfolio from Leuthold & Co. Chief Investment Officer Doug Ramsey that delivered for investors over the past 50 years. The All Asset No Authority (AANA) portfolio provided investors with returns that were on par with the S&P 500, but with significantly less risk, by investing equal amounts in seven different asset classes: U.S. large-cap stocks, U.S. small-cap stocks, U.S. 10-year Treasury notes, U.S. real estate investment trusts, international stocks, commodities and gold.

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Schwab U.S. Small-Cap ETF, SCHA, seeks to track the performance of the Dow Jones U.S. Small-Cap Total Stock Market Index. iShares Core S&P Small-Cap ETF, IJR, seeks to track the performance of the S&P SmallCap 600 Index.

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Should Schwab U.S. SmallCap ETF (SCHA) Be on Your Investing Radar?

Altimmune

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News for Schwab U.S. Small-Cap ETF ETF (SCHA)