ETF Trends
ETF Trends

The idea of low-fee exchange traded funds is not confined to U.S. large-caps. Investors can pinch pennies on a variety of asset classes, including funds tracking U.S. small-cap stocks. One of the least expensive options among small-cap ETFs is the Schwab U.S. Small-Cap (NYSEArca: SCHA).

In late 2016, Schwab lowered the annual fee on SCHA. 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 clients can trade SCHA commission-free on the firm’s ETF OneSource platform.

SCHA “offers well-diversified exposure to U.S. small-cap stocks by tracking the Dow Jones U.S. Small-Cap Total Stock Market Index,” said Morningstar in a recent note. “The index represents the bottom 15% of stocks by market cap in the total U.S. investable stock market. It holds about 1,750 stocks and extends further down the market-cap spectrum than its typical peer. But its average market cap is 20% larger than the Morningstar Category average’s, likely because of a market-cap-weighting approach that pulls the portfolio toward the largest small-cap stocks.”

SCHA is slightly cheaper than the competing funds offered by rivals iShares and Vanguard. The $6.7 billion SCHA holds nearly 1,750 stocks. Its largest sector allocation is 17.7% to financial services. Technology and industrial stocks combine for 30.6% of the fund’s roster.

“From its inception in November 2009 through December 2017, the fund bested the small-blend category average by 1.6 percentage points annually with similar risk,” according to Morningstar. “Much of this outperformance can be attributed to the fund’s persistent low-cost advantage. Because this index fund is always fully invested, it may suffer deeper drawdowns than the average fund in the category during bear markets. But its smaller cash drag should pay off during bull markets.”

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.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.