Frugal investors looking for low-cost, small-cap index funds have a growing number of options from which to choose, including the Schwab U.S. Small-Cap ETF (NYSEArca: SCHA).
Charles Schwab lowered fees on five exchange traded funds in October. SCHA was part of that group. The fee cuts are seen as a response to BlackRock’s recent cost reductions on 15 of its iShares “Core” ETF suite. SCHA now charges 0.06% per year, or just $6 on a $10,000 stake, making it one of the least expensive small-cap ETFs on the market.
Schwab currently offers the cheapest U.S.-listed ETFs on the market, including the Schwab U.S. Large-Cap ETF (NYSEArca: SCHX) and Schwab U.S. Broad Market ETF (NYSEArca: SCHB), which both come with a 0.03% expense ratio.
Small-cap ETFs such as SCHA have been soaring since Election Day on the back of the stronger dollar and in anticipation of several interest rate hikes by the Federal Reserve this year. A Fed rate hike would also help support the U.S. dollar, which would make U.S. exports more expensive overseas and diminish revenue for larger companies with a bigger international footprint. In contrast, small-cap stocks are focused on domestic markets
“This Schwab ETF follows the Dow Jones U.S. Small Cap Total Stock Market Index and offers investors broad-based exposure to the small-cap universe with a roster of almost 1,760 stocks,” according to InvestorPlace. “Technology and financial services stocks both account for over 15% of this Schwab ETF’s weight. The weighted average market value of SCHA’s holdings is over $2.5 billion, indicating this ETF’s roster is comprised mostly of bigger small caps.”
Small-caps are also focused on the domestic economy and have less direct exposure to global geopolitical uncertainty and currency risks, as opposed to large-cap companies that have an international footprint, which may be affected by overseas risks and a strengthening U.S. dollar.
As the broad equities market pushes toward new highs, riskier assets like small-caps have been able to rally back much quicker. When the economy is doing well and the markets rally, we see sentiment for more nimble smaller companies improve and outperform those of their more languorous, larger peers.
For more information on the small-cap segment, visit our small-cap category.