The Schwab U.S. Mid-Cap Growth ETF (SCHA) is designed to track the performance of the Dow Jones U.S. Mid-Cap Total Stock Market Index. Thus, unlike many of the more prominent exchange traded funds passive investors focus more intently on, this is a fund aimed at providing exposure which is weighted more toward companies at the middle of the distribution.
Whereas most gains in the stock market in recent years have come from mega-cap giants (with some rallies seen among small caps as interest rates have come down), mid-cap companies have largely not participated in this rally to the same degree, or at all in some cases. Thus, this ETF may be considered an interesting pick by many investors who are banking on current dynamics remaining in place.
I certainly think we will see significant index-level growth driven by a handful (or less) of companies that continue to knock the ball out of the park. But I also think that over time, mid-cap growth stocks should see performance revert toward the mean. That could mean outperformance relative to large-caps for the first time in quite a while.
For those who are thinking along the same page and want to gain outsized exposure to mid-cap companies that are growing quickly, this is an ETF to look at. Here are a few reasons why I think this particular ETF is a buy right now.
Key Points About This Article:
- Mid-cap growth stocks are among the companies that have been left for dead (proverbially) by the market, though that dynamic could change.
- Here’s why this ETF which tracks the mid-cal total stock market index may be worth considering over the medium-term.
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What Makes SCHA An Attractive ETF
Schwab is a company that’s well-known for providing some of the cheapest and most liquid ETFs in the market, managing over $350 billion across 30 funds. Accordingly, I tend to look at Schwab’s portfolio (and Vanguard’s as well) of ETFs in a particular area first. For those who may not be aware, the SCHA ETF comes with a net expense ratio of only 0.04%, which is about as low as MERs come. Thus, from the perspective of a long-term investor, the ability to compound one’s wealth in a highly-diversified way becomes much more enticing with a fund like this (rather than looking to replicate such a portfolio on one’s own).
Indeed, it’s true for any investor that diversifying one’s exposure to a particular group of stocks can help improve risk-adjusted returns. And in the mid-cap growth space, one that’s been a relative laggard for some time, having that diversification is going to play an integral role in justifying taking outsized exposure to this sector. In my view, SCHA provides this kind of low-cost exposure, with the name recognition to back it up.
This fund is still up more than 8.5% on a year-to-date basis at the time of writing, and up more than 24% over the past year. If we do get another rotation rally out of mega-cap stocks into companies with better valuations, this is a fund that could really outperform. That’s the key here.
Broad Ownership Is Key
The Schwab U.S. Mid-Cap Growth ETF (SCHA) is held in various investment portfolios, primarily by institutional investors and funds that focus on mid-cap growth strategies. While specific holders can vary over time, the ETF is popular among asset managers and investment firms that prioritize exposure to mid-cap equities.
Moreover, large institutional investors such as pension funds, insurance companies, and mutual funds typically hold significant shares of SCHA. These entities often allocate portions of their portfolios to mid-cap growth stocks for diversification and potential growth. Many wealth management firms include SCHA in their client portfolios as part of a broader strategy to capture growth in the mid-cap segment of the market.
Independent financial advisors may recommend SCHA to clients looking for exposure to mid-cap growth equities, leveraging its low expense ratio and broad diversification. In my view, this is a fund that both institutional and retail investors can appreciate, due again to its low-cost exposure to a sector that represents relative value. Which brings me to my next point.
SCHA Is A Buy
As of mid-October, SCHA held total net assets of approximately $18.14 billion across a diverse range of stocks in varying sectors. With an incredibly low MER of only 0.04%, this is perhaps my top pick in the mid-cap space, as I view this ETF as one which is astutely exposed to some intriguing trends (such as a rotation of capital that’s likely to enter the mid-cap world). Additionally, this fund holds a number of high-quality growth names in this space, so investors aren’t give up any sort of upside, particularly for those who think this bull market will continue.
In any event, I think the fund’s relative valuation advantage (with its overall portfolio trading at just 15-times earnings) is difficult to ignore, given the underlying growth of the companies held in this ETF. For those seeking relative value in today’s world, SCHA is certainly worth a look at least as part of a well-diversified portfolio. That’s my take, anyway.
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