Schwab U.S. Broad Market ETF SHCB combines a broadly diversified portfolio of all U.S. stocks with low turnover and a miniscule price, providing it with a durable edge over its average peer. It earns a Morningstar Analyst Rating of Gold. 

The fund tracks the Dow Jones US Broad Stock Market Index, which sweeps in the largest 2,500 U.S. stocks, constituting around 95% of the investable U.S. equity market. After applying liquidity and size screens, the index weights stocks by market cap. 

The index sweeps in small and micro-caps, which slightly improve the portfolio’s overall diversification, albeit they tend to be more volatile than mid- and large-cap stocks. However, they make up less than 10% of the portfolio.   

Broad-market funds mitigate transaction costs because they don’t target specific segments of the market and aren’t prone to forced buying or selling that is the result of stocks entering or exiting a market segment. In addition, the index implements buffer rules around its lower market-cap bound to limit unnecessary turnover and associated trading costs since buying and selling thinly traded small and micro-caps increase transaction costs. 

The largest stocks in the United States, which make up the bulk of the portfolio, attract liquidity and widespread attention, such that new information is quickly reflected in their prices. Market-cap weighting is a sensible approach here. It harnesses the market’s collective wisdom of the relative value of each holding with the added benefit of low turnover and associated trading costs. 

However, market-cap weighting may expose the index to significant stock- or sector-level concentration during the market’s intermittent manic episodes. This can tilt the portfolio toward richly valued names or sectors, as was the case during the post-lockdown rally in 2020. In the long run, the benefits of broad diversification, low turnover, and a low fee outweigh these drawbacks.

Analyst Rating

Excellent broad-market fund.

Associate Analyst

Mo'ath Almahasneh

Apple

Microsoft

Amazon

NVIDIA

Alphabet

Tesla

Berkshire Hathaway Inc. - Ordinary Shares - Class B

UnitedHealth Group

This broadly diversified portfolio is representative of the entire investable U.S. equity market. It leverages the market’s collective wisdom to size its positions and enjoys low turnover as a result. It earns a High Process Pillar rating.

High

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'.

Above Average

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. Broad Market ETF

SCHB tracks a cap-weighted index of the largest 2,500 stocks in the US.

SCHB, from Charles Schwab, replicates the performance of the Dow Jones US Broad Stock Market Index, and is Schwab's version of a total-US market ETF. The index construction of SCHB is unique, but the results produced by the fund are not significantly different from major competitors. SCHB is a top-quality ETF, but investors most likely may choose it because they have a relationship with Schwab.

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