We have qualitatively reviewed this strategy and reaffirmed its Above Average Process and People ratings. Schwab U.S. REIT ETF SCHH remains a terrific domestic real estate fund because it channels the market's collective expertise with market-cap-weighting, diversifies risk effectively, and sports one of the lowest fees available. The following text is from Dec. 2, 2022. 

The Dow Jones Equity All REIT Capped ETF, which this fund fully replicates, takes a sensible, cut-and-dried approach. The index sweeps in liquid U.S. real estate investment trusts with market caps above $200 million and weights them by market capitalization. Using REITs' prices to determine their weight in the portfolio efficiently channels the market's consensus view on each holding's relative value. Market-cap-weighting also helps rein in turnover, with help from index buffers.

Market-cap-weighting can breed concentration, but a series of constraints keep this fund diversified. No REIT may exceed 10% of the portfolio, and the total weight of all holdings with allocations greater than 4.5% cannot sum to more than 22.5% of the portfolio. The fund inevitably encounters some firm-specific risk because the U.S. real estate securities market is somewhat narrow, but it diversifies more successfully than most of its peers.

The fund diversifies avoids concentration in certain property types, too. Its 40% allocation to specialized REITs seems heavy, but the differentiated nature of the specialized group should ease concentration concerns. Indeed, REITs in this portfolio that own and operate timberland, cell towers, data centers, and casinos all share the "specialized" moniker. These properties will respond differently to interest rates and industry factors, ensuring this fund's diversification.

The outlines of this portfolio look a lot like the real estate Morningstar Category average, which indicates that it draws on the full opportunity set available to active investors in this space. Its exposure to different properties can look unique, but the fund's value-growth and market-cap orientations approximate its average peer. By mimicking the contours of the category norm, this fund amplifies the impact of its pronounced cost advantage and positions itself for strong category-relative performance.

Analyst Rating

Extremely cheap.

Analyst

Ryan Jackson

Prologis

American Tower

Equinix

Welltower

Simon Property Group

Realty Income Corp

Public Storage

Crown Castle International

Digital Realty Trust

Vici Properties

We have qualitatively reviewed this strategy and reaffirmed its Above Average Process rating. The following text is from Dec. 2, 2022. 

This fund turns its rock-bottom fee into a performance advantage by capturing the full opportunity set available to its active peers. It channels the market's consensus expertise with market-cap-weighting and avoids concentration with an array of constraints. It warrants an Above Average Process Pillar rating.

Above Average

Process

We have qualitatively reviewed this strategy and reaffirmed its Above Average People rating. The following text is from Dec. 2, 2022.

Schwab’s equity index team is well-resourced and should continue to deliver tight index tracking. It warrants an Above Average rating. 

Chris 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.

The team has also started to look for ways to slightly improve returns by handling some corporate actions differently from the index, under tight tracking-error constraints. For example, when there is an option to receive cash or stock dividends, indexes often take cash, but it may be more beneficial to take stock. The team has some flexibility to take advantage of those opportunities.

Ferian Juwono, Jeremy Brown, and Agnes Zau join Bliss as named managers on this fund. Juwono leads the U.S. equity index team. Zau was named to this fund in June 2023. Like Bliss, both Juwono and Zau worked at BlackRock prior to joining Schwab in 2010 and 2018, respectively. Brown joined Schwab in 2017 from ALPS, where he served as a portfolio analyst. The named managers enjoy support from associate managers who help the team prepare for index rebalances.

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. REIT ETF

SCHH tracks a market-cap-weighted index of US real estate investment trusts, excluding mortgage REITs and hybrid REITs.

Schwab Fundamental International Large Co. Index ETF

Schwab US Dividend Equity ETF

Schwab U.S. Large-Cap Growth ETF

Schwab U.S. Large-Cap ETF

Investing in a broad swath of American companies has long been a powerful move. You might diversify your portfolio, though -- perhaps into international stocks or real estate.

5 Charles Schwab ETFs That Could Help You Retire a Millionaire

The Schwab U.S. REIT ETF has under-performed the broader market and cash since last January. The ETF's performance has been less than impressive, making a "hold" rating accurate. I recommend moving beyond passive ETF investing for Real Estate and taking a more active and/or individualized approach.

SCHH: Limited Value In Real Estate In This Macro-Environment (Rating Downgrade)

JPMorgan BetaBuilders MSCI US REIT ETF

Direxion Daily Real Estate Bull 3x Shares

Direxion Daily Real Estate Bear 3x Shares

Fidelity MSCI Real Estate ETF

First Trust S&P REIT Index Fund

iShares Cohen & Steers REIT ETF

iShares U.S. Real Estate ETF

Nuveen Real Estate Income Fund

Invesco KBW Premium Yield Equity REIT ETF

Neuberger Berman Real Estate Securities Income Fund Inc

US Diversified Real Estate ETF

Invesco Active US Real Estate

ALPS Active REIT ETF

ProShares Short Real Estate

Cohen And Steers Total Return Realty Fund

Cohen & Steers Reit And Preferred Income Fund Inc

Cohen & Steers Quality Income Realty Fund

SPDR Dow Jones REIT ETF

Seven Hills Realty Trust

ProShares UltraShort Real Estate

Pacer Funds Trust-Pacer Benchmark Data & Infrastructure Real Estate Sector ETF

How REITs have fared through high interest rate environment. Takeaways from REITs earnings season so far. When rate cuts do come, some REIT sectors may stand to benefit.

Why Lower Rates Could Lead To Opportunities In REITs This Year

ProShares Ultra Real Estate

iShares Core U.S. REIT ETF

Vanguard Real Estate ETF

The yield on 10-year Treasury Inflation-Protected Securities TIPS fell significantly from ~2.5% to ~1.7% in the last two months of 2023. How does this affect real estate? As long-lived, fixed assets with inflation-protective characteristics, quality real estate can be viewed as an equivalent to TIPS plus a risk premium.

An Opportunity For REITs To Shine In 2024

The iShares US Real Estate ETF (IYR) and the Charles Schwab US REIT ETF (SCHH) came under pressure last week as concerns about real estate valuations and high-interest rates rose. IYR, SCHH, and VNQ, ETFs that track the industry have dropped in the past three straight weeks as outflows have risen.

IYR and SCHH ETFs outflows rise as real estate outlook darkens

After lagging equities for the past two years, REITs offer an attractive investment opportunity in 2024. Peaking or falling yields have historically been a catalyst for strong REIT market outperformance.

2024 Listed REITs Outlook

Real Estate Select Sector SPDR Fund

Real estate focused ETFs have pulled back this year as investors wait for a wall of maturities in the coming years. The Vanguard Real Estate ETF (VNQ), Schwab US REIT ETF (SCHH), and the SPDR Real Estate Select Sector fund (XLRE) have all pulled back by almost 7% from their highest point this year.

VNQ, SCHH, XLRE ETFs brace for a wall of maturities

CubeSmart

Extra Space Storage

National Storage Affiliates Trust

Global Self Storage

Self-Storage REITs delivered incredible growth early in the pandemic driven by surging housing market activity, but have been victims to their own success of late amid a supply-driven cooldown. Robust double-digit rent growth and relatively low operational barriers to entry prompted a wave of new development, with a roughly 12% expansion in total supply expected between 2022 and 2024. This supply boom - twice the magnitude of the multifamily sector - has reignited fierce "storage wars" between competing facilities, which has led to double-digit dips in new lease rates since mid-2022.

Storage REITs: Victims Of Own Success

Schwab's U.S. REIT ETF has demonstrated consistent performance, a low expense ratio, and relatively high dividend yield. Vanguard's Real Estate Index Fund has outperformed SCHH over the long term and has greater diversification. VNQ's holdings have advantages over SCHH, including lower weight on overvalued REITs and a top holding in Vanguard's institutional shares.

SCHH: Worth Buying, But I Like Another REIT ETF Even More

Brookfield Asset Management

Blackstone Group

Camden Property

Mid-America Apartment Communities

Major private equity groups are investing in the REIT sector. They are buying apartment REITs at 60-70 cents on the dollar. So am I and here's why.

I Am Buying Apartment REITs Hand Over Fist

The S&P 500 has massively outperformed REITs in recent years. But we expect this outperformance to soon reverse. I explain why I expect REITs to easily beat the S&P 500 going forward.

Why REITs Will Likely Pummel The S&P 500

Hoya Capital Housing ETF

Pacer Benchmark Industrial Real Estate SCTR ETF

iShares U.S. Home Construction ETF

Janus Henderson U.S. Real Estate ETF

VanEck Mortgage REIT Income ETF

Direxion Daily Homebuilders & Supplies Bull 3X Shares

Nuveen Short-Term REIT ETF

Invesco Dynamic Building & Construction ETF

iShares Global REIT ETF

iShares Mortgage Real Estate ETF

iShares Residential Real Estate ETF

IQ US Real Estate Small Cap ETF

Invesco S&P 500 Equal Weight Real Estate ETF

Global X SuperDividend REIT ETF

SPDR S&P Homebuilders ETF

Alpine Global Premier Properties Fund

DoubleLine Commercial Real Estate ETF

First Trust Alerian Disruptive

iShares International Developed Real Estate ETF

CBRE Global Real Estate Income Fund

Invesco Real Assets ESG ETF

NETLease Corporate Real Estate ETF

SPDR Dow Jones Global Real Estate ETF

SPDR Dow Jones International Real Estate ETF

Vanguard Global ex-U.S. Real Estate ETF

iShares International Developed Property ETF

The history of construction spending since 1993 reveals that this data tends to weaken prior to recessions. For a recent dip in Residential Construction attributed to the rise in mortgage rates, this indicator is charging higher.

Construction Spending Rises

REITs have seen valuations compress on higher rates and FFO has been pressured on higher debt costs and lower occupancy. Consensus points to a 22% potential upside, suggesting analysts are factoring in a rate cut in YE24. I think SCHH is a speculative buy, as it requires a decline in Fed rates to regain valuation levels.

SCHH: Speculative Buy On Fed Pivot

The Schwab U.S. REIT ETF is a cost-effective option for gaining exposure to the U.S. real estate market. The ETF holds a diversified portfolio of approximately 124 holdings, with a high concentration in the top ten holdings. SCHH has underperformed compared to its peers and carries potential sector risks, making it a less desirable choice for risk-averse investors.

SCHH: Better Options Out There

Why Warren Buffett And Charlie Munger Don't Like REITs But You Should

Real Estate Investment Trust (REIT) ETF stocks have bounced back in the past few days as investors attempt to buy the dip. The Schwab US REIT ETF (SCHH) rose to a high of $17.87, a few points above the year-to-date low of $17.00.

SCHH, VNQ, XLRE: REIT ETFs are rising but risks remain

Alexandria Real Estate Equities

REITs are currently facing widespread dislike among investors. The negative sentiment towards REITs is due to the high-interest rates. I explain why I believe that most investors are misguided and highlight some opportunities to consider.

Urgent Warning To REIT Investors

Amidst the bearish sentiment towards real estate, a compelling opportunity to own REITs has emerged. The deeply discounted REIT market has largely priced in the challenges for real estate of higher rates and tighter credit markets. Areas of concern for real estate - office properties or too much leverage - are well-contained in public REIT markets. REITs generally possess high-quality balance sheets and have minimal exposure to traditional office space.

Opportunities In Listed REITs Today

I hold a significant allocation towards quality REITs. In this article, I share my bullish thesis for investing in the sector. I also highlight catalysts that could take quality REITs to new all-time highs in as little as 12 months.

My Bullish REIT Thesis And Catalysts That Could Take Us To New ATHs

Data extracted from all of VettaFi's digital properties from the data and analytics tool Explorer indicate that investor interest in real estate ETFs has remained steady in the past three months. VettaFi's LOGICLY tool allows us to examine some of the leading ETFs in the U.S. real estate space.

Real Estate ETFs: The Top Funds in the Sector

InfraCap MLP

Advisorshares Hotel ETF

Advisorshares Restaurant ETF

Fidelity MSCI Energy Index ETF

Fidelity MSCI Financials Index ETF

Gabelli Financial Services Opportunities ETF

Invesco Dynamic Media ETF

Invesco S&P SmallCap Consumer Staples ETF

Invesco S&P SmallCap Financials ETF

Invesco S&P SmallCap Materials ETF

Invesco S&P 500 Equal Weight Communication Services ETF

Spear Alpha ETF

SPDR S&P Aerospace & Defense ETF

SPDR S&P Health Care Equipment ETF

I leverage my firm's data to identify three red flags you can use to avoid the worst ETFs.

How To Avoid The Worst Sector ETFs 3Q23

Schwab U.S. REIT ETF is a popular REIT ETF with a focus on low-cost investing in U.S. equity REITs. It has a strong bias towards defensive sectors such as telco tower, industrial, multi-family residential, and data center REITs. SCHH has underperformed the S&P 500 and its comparable ETF, VNQ, due to the elevated exposure to interest rate risk and sector-skew facing challenges.

SCHH: Suboptimal Way To Enter REIT Space

Farmland Partners

Gladstone Land

PotlatchDeltic

One of the hottest "inflation hedges" during the pandemic, land REITs have fallen out-of-favor as rising rates and normalizing supply chains have created disinflationary - and even deflationary - headwinds for commodities. While services sector inflation remains sticky, goods-related inflation has fallen dramatically over the past nine months, with some inflation reports now showing goods deflation levels typically seen only in recessions.

Land REITs: Disinflation Headwinds

Allow me to utilize 2 overused quotes: Buy when there is blood in the streets. Be greedy when others are fearful.

Peak Bear Has Arrived In Real Estate

Virtus Real Asset Income ETF

U.S. equity markets climbed to their highs of the year as investors took positions ahead of a critical slate of inflation data and an anticipated "pause" in the Fed's rate hike cycle.

Fed Looms Over New 'Bull Market'

News for Schwab U.S. REIT ETF ETF (SCHH)