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).
With an annual fee of just 0.04% per year, or $4 on a $10,000 investment, SCHA is not just one of the least expensive small-cap ETFs, it is one of the least expensive ETFs of any stripe. SCHA’s annual fee was recently trimmed from 0.06%. Schwab clients can trade SCHA commission-free on the firm’s ETF OneSource platform.
“The fund targets U.S. small-cap stocks by tracking the market-cap-weighted Dow Jones U.S. Small-Cap Total Stock Market Index,” said Morningstar in a recent note. “This index represents the smallest 15% of U.S. stocks by market cap and accurately represents its peers’ opportunity set. Small-cap stocks offer diversification benefits and greater potential returns than large-cap stocks, but are also riskier. The fund’s broad reach and market-cap-weighting approach help it effectively diversify risk while keeping costs down by mitigating turnover, which has consistently been among the lowest in the category.”
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.
Sampling SCHA ETF
SCHA, which turns 10 years old in November, holds 1.736 stocks. The fund allocates almost 18% of its weight to financial services stocks and a combined 31.70% to the technology and industrial sectors. SCHA’s long-term performance has been solid.
“From its November 2009 inception through June 2018, the fund topped the category average by 1.5 percentage points annually with similar risk,” according to Morningstar. “Much of this outperformance can be attributed to the fund’s low-cost advantage. Because this index fund is always fully invested, it will suffer the full brunt of market downturns, but its smaller cash drag will pay off during bull markets.”
SCHA earns a Morningstar rating of Gold.
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.