Exchange-traded funds (ETFs) like Schwab U.S. Dividend Equity ETF (SCHD) and Vanguard Value ETF (VTV) are widely popular among investors looking to diversify their portfolios with large-cap value stocks. While both ETFs share similarities, they exhibit significant differences in performance, dividends, risk, and costs. This comprehensive guide will compare SCHD and VTV to help you make an informed decision based on your investment goals.
SCHD vs. VTV: Overview
SCHD is designed to track the performance of high-quality dividend-paying large-cap U.S. stocks, with a focus on companies demonstrating consistent financial strength. On the other hand, VTV targets large-cap U.S. value stocks, emphasizing undervalued companies with growth potential. While both ETFs cater to value-oriented investors, their underlying strategies result in distinct portfolio compositions and outcomes.
Performance Metrics
| Metric | SCHD | VTV |
|---|---|---|
| 10-Year Annualized Return | 11.33% | 10.57% |
| Dividend Yield | 3.55% | 2.24% |
| Expense Ratio | 0.06% | 0.04% |
| Maximum Drawdown | -33.37% | -59.27% |
| Correlation | 0.94 | 0.94 |
Key Takeaways:
- Higher Returns: SCHD edges out VTV with slightly better long-term annualized returns, making it a strong choice for growth-oriented investors.
- Income Focus: SCHD’s higher dividend yield of 3.55% outpaces VTV’s 2.24%, appealing to income-focused investors.
- Lower Risk: SCHD exhibits a smaller maximum drawdown, providing more stability during volatile market conditions.
- Cost Advantage: Both ETFs have ultra-low expense ratios, but VTV’s 0.04% is marginally more cost-efficient.
Dividend Income Comparison
Dividend yield is a significant factor for income-seeking investors. SCHD stands out with its higher yield of 3.55%, offering more substantial income generation than VTV’s 2.24%. This advantage makes SCHD an excellent option for investors looking to supplement their income streams.
Example: If you invest $100,000, SCHD would generate $3,550 annually in dividends, compared to $2,240 from VTV.
SCHD’s dividend-focused strategy ensures a portfolio of high-quality companies with a consistent history of dividend payments and growth potential.
Risk and Volatility
Maximum Drawdown
SCHD’s maximum drawdown of -33.37% during market downturns highlights its lower volatility compared to VTV, which experienced a -59.27% drawdown. This makes SCHD more appealing for risk-averse investors seeking steadier performance.
Correlation
Both ETFs exhibit a high correlation of 0.94, indicating that their price movements are closely linked. Despite this, SCHD’s emphasis on dividend-paying stocks may provide an added layer of stability in turbulent markets.
Expense Ratios: Cost Efficiency
Expense ratios are a critical consideration for long-term investors. While both ETFs are extremely cost-efficient, VTV has a slight edge with an expense ratio of 0.04% compared to SCHD’s 0.06%. Over time, this difference may lead to marginally lower costs for VTV investors, but the impact is negligible for most.
Portfolio Composition
SCHD Highlights:
- Sector Allocation: Consumer staples, technology, and healthcare dominate SCHD’s holdings.
- Top Holdings: Procter & Gamble, Coca-Cola, and PepsiCo are key components of SCHD’s portfolio, reflecting its focus on stable, high-quality companies.
VTV Highlights:
- Sector Allocation: VTV leans heavily toward financials, healthcare, and industrials.
- Top Holdings: Berkshire Hathaway, Johnson & Johnson, and JPMorgan Chase are among its leading investments, showcasing its broad exposure to value stocks.
Suitability for Different Investors
| Investor Type | SCHD | VTV |
|---|---|---|
| Income-Oriented | High dividend yield and stability | Moderate yield with growth focus |
| Growth-Oriented | Balanced growth and income | Value-focused growth potential |
| Risk-Averse | Lower drawdown | Moderate risk |
| Cost-Sensitive | Slightly higher expense ratio | Lower expense ratio |
SCHD’s blend of growth and income appeals to a broader range of investors, while VTV’s focus on undervalued stocks may attract those seeking deep value opportunities.
Expert Insights
- Dividend Enthusiasts: Financial experts often commend SCHD for its consistent dividend payouts, making it a favorite among income-focused investors.
- Value Investors: Analysts highlight VTV’s strength in identifying undervalued companies with growth potential, offering attractive opportunities for value-oriented portfolios.
- Portfolio Diversification: Both ETFs provide strong diversification benefits, but pairing them can optimize exposure to dividend income and value growth.
FAQs
Which ETF is better for long-term growth?
SCHD’s higher annualized returns and lower volatility make it an excellent choice for long-term growth with added stability.
Which ETF is more cost-effective?
VTV’s slightly lower expense ratio (0.04%) gives it a minor edge in cost efficiency, especially for large investments.
Is SCHD less risky than VTV?
Yes, SCHD’s smaller maximum drawdown suggests it is less volatile, making it better suited for risk-averse investors.
Can I invest in both SCHD and VTV?
Absolutely. Combining SCHD and VTV can enhance diversification, balancing dividend income with value-focused growth.
Conclusion
SCHD and VTV both offer compelling benefits for value-oriented investors, but their unique characteristics make them suitable for different objectives. SCHD’s higher dividend yield, lower risk, and slightly better performance make it ideal for income-focused and conservative investors. In contrast, VTV’s lower expense ratio and broader value exposure cater to those seeking cost-efficiency and deep value opportunities.
For a well-rounded portfolio, consider investing in both ETFs to leverage their complementary strengths. This approach allows you to enjoy SCHD’s income stability alongside VTV’s value-driven growth potential.
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