Schwab International Dividend Equity ETF SCHY builds its portfolio around stocks that are more profitable and stable than the market. Those characteristics, combined with a low fee, should lead to better risk-adjusted performance than the MSCI ACWI ex USA Value Index.

This exchange-traded fund tracks the Dow Jones International Dividend 100 Index. This bogy starts with stocks in the Dow Jones Global ex US Large-Cap and Dow Jones Global ex US Mid-Cap indexes and refines those cohorts down to just 100 stocks. It excludes REITs and searches for stocks with higher dividend yields, greater profitability and free cash flow, lower volatility, and a long history of regular cash dividend payments. It focuses on the top names that meet these criteria while incorporating some buffer rules to keep turnover within reasonable levels. The fund also promotes diversification by limiting single stock weightings to 4%, sector weightings to 15%, and emerging markets to 15%.

The resulting portfolio favors stable companies that are likely to maintain their dividend payments. On average, its profitability has been consistently higher than the MSCI ACWI ex USA Value Index, and it has tended to incur less of the market's risk. Despite looking for stocks with higher dividend yields, it does not provide a higher yield than the value side of the market. As of October 2023, its trailing 12-month dividend yield stood at roughly 3.9%, placing it on par with its Morningstar Category index. That said, yield does not play a big role in the portfolio's overall ability to deliver strong risk-adjusted performance relative to the MSCI ACWI ex USA Value Index.

The portfolio's preference for stable companies tends to influence its composition. As of October 2023, it favored stocks from the consumer staples, communications, and utilities sectors. Less than 10% of its portfolio was parked in stocks from the energy, IT, and consumer discretionary sectors.

So far, the fund has delivered on expectations. It has been less volatile than the MSCI ACWI ex USA Value Index, and it has provided a modest edge over that benchmark since Schwab launched it in April 2021. Its low fee should be a big advantage over its more expensive category peers.

Analyst Rating

Profitable companies that consistently pay dividends.

Senior Analyst

Daniel Sotiroff

TotalEnergies SE

GlaxoSmithKline

BHP Billiton

Western Gas Partners

Dollar General

Rogers

Rio Tinto plc Sponsored

Toronto-Dominion Bank

MoneyLion

Vodafone Group

This portfolio holds an elite group of profitable stocks that tend to be less risky than the market. Those characteristics should help it weather downturns better than the MSCI ACWI ex USA Value Index. It 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. Chuck Craig and David Rios join Bliss as named managers on this fund. Jane Qin was previously named as a manager here, but she left to oversee portfolios in Schwab’s personalized indexing effort in June 2022. 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 Strategic Trust-Schwab International Dividend Equity ETF

SCHY tracks a modified market-cap-weighted index of 100 high-dividend-yielding stocks located outside of the US. Stocks are selected based on additional fundamental criteria and low volatility.

Gain strategic exposure to the top 100 quality international stocks with SCHY using the same screening methodology as SCHD. With a higher 4.86% TTM yield than the US-based version of the index offers, SCHY offers an excellent yield opportunity for those seeking income and international diversification. SCHY returns have outperformed VXUS and it's international benchmark since inception on a risk-adjusted return basis and through major drawdowns.

SCHY: The International Version Of SCHD Worth Diversifying Into

The US Federal Reserve is expected to maintain higher interest rates while other major central banks, such as the ECB and BoE, are likely to shift to lower interest rates. The divergence in interest rates presents an opportunity to invest in international dividend stocks, which are expected to outperform their US counterparts. The Schwab International Dividend Equity ETF is the recommended investment tool for betting on international interest rates due to its low expense ratio and exposure to developed countries.

SCHY: How The Fed's Policies Make International Dividend Stocks An Attractive Bet

Schwab International Dividend Equity ETF targets high-dividend-yielding companies outside the US, providing consistent income and potential capital appreciation. SCHY has a diversified portfolio with a well-balanced sector composition, offering broad-based exposure and reducing investor risk. The fund has outperformed similar ETFs over the past two years and has a lower expense ratio, making it a cost-effective investment option.

SCHY: The Cycle Will Come For It Soon

Schwab International Dividend Equity ETF (SCHY) aims to replicate the success of its US counterpart (SCHD) but faces challenges in finding dividend growth companies in foreign markets. The fund focuses on foreign stocks with a history of consistent dividends and financial stability, resulting in a portfolio of 120-130 stocks with high dividend yields and low volatility. While SCHY has shown dividend growth in the past two years, the lack of dividend growth criteria and limited pool of dividend growth companies outside the US may impact its future performance.

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The US Dollar Index has been on a strong run, causing foreign stocks to underperform relative to US equities. The Schwab International Dividend Equity ETF has performed well despite the dollar's advance, with a 3.7% trailing 12-month yield. SCHY is a cost-effective option for investors seeking tax efficiency and offers a diversified portfolio of high dividend-yielding stocks.

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Schwab International Dividend Equity ETF is a promising investment vehicle for dividend investors seeking international exposure. SCHY's methodology, which favors better debt coverage, ROE, and lower volatility, has demonstrated capital preservation during rocky market conditions. Investors should be mindful of potential underperformance in different market conditions and high portfolio turnover related tax implications.

SCHY: An Objective That Should Align With Investors

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SCHD is beloved by income investors for its impeccable quality, excellent historical returns, and impeccable dividend growth record. It consists of 100 of America's best world-beater high-yield blue chips and is expected to keep delivering around 14% returns in the future as it has since 2011.

SCHD Vs. SCHY: One Of These Is The Best High-Yield ETF

In February 2022, I wrote a review of VYMI. Based on a reader's request, I then reviewed SCHY, a fairly recent newcomer in the same category. At the time, SCHY didn't have much of a track record. But it shared selection criteria with SCHD, a stellar U.S. dividend-focused ETF.

SCHY: A Longer Track Record Brings Me Back For A Second Look

The Schwab International Dividend Equity ETF is based on the same stock selection criteria as the successful SCHD ETF. It currently has a 3.7% distribution yield based on a portfolio of global value stocks.

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SCHY is an international non-U.S. equity ETF  focusing on dividends and developed countries. The aim of this thesis is portfolio diversification and taking advantage of the fact that stock markets everywhere are down.

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The sectorial and market ceiling in SCHY's portfolio make this fund fully diversified, and less susceptible to the performance of a particular market or industry segment. SCHY's portfolio also emphasizes selecting high dividend-paying stocks of a particular sector from particular economies, where those sectors have flourished.

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In the comments section of my recent article on VYMI, a reader asked "What about SCHY?" Never having reviewed this ETF, I thought it was high time I did so. In this article, I start with a deep dive into SCHY, including its selection methodology, country profile, sector weightings, and research links on each of its Top 10 holdings.

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The Schwab International Dividend Equity ETF holds a portfolio of international stocks with 10+ years of dividend payments while also screening for quality. It has 139 holdings and costs just 14 basis points.

News for Schwab Strategic Trust-Schwab International Dividend Equity ETF ETF (SCHY)