The year-to-date share price gain of Schwab U.S. Dividend Equity ETF (SCHD), a dividend stock exchange-traded fund (ETF) avidly bought by so-called seohak ants (individual investors in overseas stocks), is stuck at 1%. It is negative from last year's peak. It has lagged not only the large-cap-focused Standard & Poor's (S&P 500) index but also the small-cap-focused Russell 2000 index. A reshuffle of its constituents in Mar. turned out to be a misstep.
As of the end of Sep., Korean investors held $2,354.95 million (about 3.3 trillion won) worth of SCHD, according to the Korea Securities Depository (KSD) on the 2nd. It ranks 14th among U.S. stocks by holdings.
SCHD is an ETF that invests in high-quality dividend stocks. It includes only stocks that have paid dividends for at least 10 years, have a market capitalization of $500 million or more, and have sound financial metrics such as return on equity (ROE). It held up relatively well when the U.S. stock market wobbled, and seohak ants concentrated their investments because they could capture both price gains and dividend yield. Borrowing its ticker, it earned the nickname "Schd."
However, SCHD's share price gain this year is just 0.99% ($0.27) as of the 1st (local time). It is near the bottom among U.S. ETFs by return. The gap is large compared with the year-to-date gains of the S&P 500 (14.36%) and the Nasdaq (18.02%), as well as the Russell 2000 (9.44%).
The biggest reason for SCHD's weak performance is seen as the absence of the large-cap tech stocks leading the U.S. market. In addition, its constituent-change strategy so far is judged to have been unsuccessful.
SCHD adjusts its constituents once every Mar. In Mar. this year, SCHD removed a large number of financial stocks and increased the weight of energy and consumer stocks. The financial sector weight fell from 17.2% to 8.5%, while energy rose from 12.2% to 21%. Consumer at 18.7% and healthcare at 16.1% followed. As a result, it increased exposure to energy, consumer, and healthcare—the sectors that performed the worst in the U.S. market this year—while reducing financials, which performed well.
SCHD's dividend yield is also unlikely to offset the weak share price. Its annual dividend yield is 3.7%, similar to the yield on 1-year U.S. Government Bonds (3.6%).
Even so, seohak ants have continued to show affection, posting net settlement purchases of $78.08 million (about 110 billion won) over the past month. They appear to expect energy and healthcare to have bottomed and to rebound.
An executive at an asset management company said, "Because seohak ants generally have a large allocation to U.S. tech stocks, they also put SCHD into their accounts as a complement," adding, "It can still be valid from a diversification perspective."