Schwab U.S. Mid-Cap ETF effectively combines a broadly diversified portfolio of U.S. mid-cap stocks with low turnover and a minuscule price, providing it with a durable edge over its category peers. 

The fund tracks the Dow Jones US Mid-Cap Total Stock Market Index, which selects 500 mid-cap stocks that reflect the mid-cap equity market composition after applying liquidity and float screens. It weights eligible stocks by market cap and implements buffers that prioritize current constituents to limit unnecessary turnover.

Market-cap weighting is a sensible approach here. It harnesses the market’s collective view on the relative value of each holding and promotes diversification. Low turnover and associated trading costs add to the appeal.

Mid-cap stocks can take a variety of shapes. Some are companies with established business models and sound financials but are not industry leaders. Others are smaller firms whose growth prospects come with volatile performance.

The fund diversifies risk effectively and tames concentration. Assets in the top 10 holdings constituted only 5% of the portfolio as of June 2023, 9 percentage points lower than the average mid-cap blend fund. In addition, its style and sector allocations accurately mimic its average peer in the mid-blend Morningstar Category. No sector weight deviated by more than 2 percentage points from the average peer. It also trades at similar valuations as the average category peer. These qualities emphasize the fund’s cost advantage in driving category-relative performance.

The fund's 0.04% annual fee gives it a durable performance edge over category peers. Since its 2011 inception, the fund has outperformed its average peer by 1.5 percentage points annualized.

Analyst Rating

Well-diversified and cheap.

Associate Analyst

Mo'ath Almahasneh

Dell Technologies

Vertiv Holdings Co

Vistra Energy

Western Digital

Hubbell

Axon Enterprise

Deckers Outdoor

NetApp

Steel Dynamics

The Dow Jones US Mid-Cap Total Stock Market Index constructs a broadly diversified, low-turnover portfolio that accurately represents the mid-cap market, supporting a High Process rating.

High

Process

Schwab’s equity index portfolio management team remains strong, earning an Above Average People Pillar 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. 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. Mid-Cap ETF

SCHM tracks a market cap-weighted index of mid-cap stocks in the Dow Jones US Total Stock Market Index.

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