Schb schwab us broad market etf

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SCHB: Schwab US Broad Market ETF

  • How to track
  • Management
  • Features
  • Suitability and recommendations
  • How financial advisors can help clients use This ETF
  • Main competitors and alternatives

The Schwab US Broad Market Fund (NYSEARCA: SCHB SCHBSchw US Brd Mkt62. 58 + 0. 19% Created with Highstock 4. 2. 6 ) seeks to track, before fees and expenses, the total return and yield performance of the Dow Jones U.S. Broad Stock Market Index, the underlying index. SCHB features a huge, diverse portfolio and an extremely low expense ratio.

The underlying index is a subset of the Dow Jones U. S. Total Stock Market Index, which measures the entire U.S. equity market. SCHB relies on the underlying index's inclusion criteria, which is based on a float-adjusted and market-cap-weighted methodology to gather a pool of more than 2,000 individual stocks.

SCHB combines its broad network with a large- and small-cap approach to create one of the most efficient and tradable broad market funds in the marketplace. Investing in this ETF is equivalent to having an arbitrary stake in the overall domestic stock market. SCHB is a cyclical fund that is heavily influenced by the performance of the stock market.

How to track it

The prospectus for SCHB states that the fund's objective is to track the underlying index "as closely as possible", and this is what it means. Inclusion in this ETF is essentially identical to the Dow Jones U. S. Broad Stock Market Index, minus a few securities here or there, resulting in an incredibly tight tracking fit.

Among the top five sectors, this ETF has a remarkable sector track record. Financials take the lead with nearly 18.5% of total assets, but the next four sectors, technology, consumer cyclicals, health care and industrials, range from 13% to 16% each. Rounding out the top 10 are defensive consumer, energy, utilities, basic materials and telecoms.

Familiar names fill the top 10 of each portfolio. Apple is the largest player at nearly 3.25%, which is significant given the more than 2,000 positions in the portfolio, followed by Microsoft, Exxon Mobile, Johnson& Johnson, the General Electric Company, Wells Fargo and JP Morgan Chase. Berkshire Hathaway, Procter& Gamble and Pfizer. These 10 holdings account for about 14% of total assets.

Over a 12-month period, SCHB showed a median tracking error of only 0. 08%. This means there was a 0.08% discrepancy between the performance of the benchmark index and the ETF, likely due to minor portfolio differences.

Management

Charles Schwab& Co, Inc. published the SCHB in November 2009. It is one of nearly two dozen Schwab exchange-traded products and one of several U.S. equity-based ETFs. The fund is passively managed.

SCHB should not be confused with the Schwab Fundamental US Broad Market Index ETF, which is part of the Schwab Fundamental Index ETF series.While both SCHB and the Schwab Fundamental U.S. Broad Market Index ETF are broad-based domestic funds, they track separate indexes and employ different methodologies.

Features

Very few funds track as closely or perform as passively as SCHB. By nearly every metric imaginable, be it market capitalization, sector weightings or management costs, this ETF is virtually indistinguishable from its benchmark.

SCHB manages assets of just over $5 billion and an average of 600,000 transactions for a total volume of more than $31 million per day. Spreads are tight at 0, 03%. The real eye-catcher, however, is SCHB's extremely low expense ratio of 0.44%. This tiny fee is among the lowest for any fund in any category and shows how effective management is at keeping up with benchmark changes while avoiding capital gains payouts.

Suitability and recommendations

This ETF provides convenient and efficient coverage of the U.S. equity market. The portfolio mix for SCHB is a different approach to more traditional mid-cap strategies: taking advantage of greater fund stability and lower fund growth potential simultaneously. Only SCHB doesn't find its blend in a mid-cap portfolio; instead, it combines blue-chip large- and giant-cap stocks with targeted exposure to small-cap companies.

SCHB's efficiency and diversity make it suitable for almost any long-term portfolio. Low fees are a key feature for investors with a multidecade horizon, as these savings boost returns and compound over time. Traders and short-term investors can use SCHB as a bet on the overall stock market without worrying about a lack of trading partners.

Like any ETF, SCHB is subject to investment risks. These include market risk, inflation risk, regulatory risk, and low liquidity risk. Since SCHB is very closely tied to the broader total market, this fund should perform well when the economy is humming and struggling in a downturn. This is nice for investors who like market exposure without much human bias, but it also means investors should adopt some sort of hedge for the U.S. market.

Overall, SCHB is a good performer in a crowded category. It has outstanding efficiency and average risk-return profile. According to Morningstar research, SCHB brings a 36-month beta rating of 1.00 against the best-matched index, perfectly cyclical. As would be expected with such a passive strategy, the alpha ratings for the fund range from 0, 0.

How financial advisors can help clients use This ETF

SCHB is very popular and easy to trade. Their balance and diversification are easy for even novices to understand. Combine these elements with low expense ratios and a tremendous asset base, and SCHB may be one of the least intimidating ETFs.

This is the type of fund that can be an important core holding as long as it is balanced by international exposure and some defensive positions. Bull markets should do SCHB well, so it is an easy target for new funds in times of prosperity.

Short-term investors and traders might not be thrilled by SCHB's relatively boring investment strategy, but they should never lack liquidity and should not fail the cash / letter campaign. Hedging should not be difficult thanks to its large cap tilt.

Main competitors and alternatives

SCHB is alone in tracking the Dow Jones U. S. Broad Stock Market total return index, but there are nearly 50 different competitor ETFs in the broad market/total market space. The undisputed king of this space is the monstrous at $56. 5 billion in assets, Vanguard Total Stock Market ETF, which compares favorably with SCHB in almost every metric.

Two other broad-based ETFs offer SCHB a similar asset base and volume. One of these is the iShares Russell 3000 ETF, which tracks the Russell 3000 Index. The other is the iShares MSCI USA Minimum Volatility ETF, although its expense ratio is nearly four times that of SCHB's.