Active and passive investors alike have plenty to gain from considering exchange traded funds (ETFs) as part of their investing strategy. Indeed, stock picking can be fun, exhilarating even. But creating a portfolio that’s truly diversified can take plenty of time (and money), with constant research required to update one’s holdings to reflect the current state of the market.
The good news is for investors looking for the lowest-cost diversification in the market, there happen to be a number of top firms providing exposure to such baskets of stocks at rock-bottom fees. Schwab continues to be among the top ETF providers I think investors would do well to consider. Their breadth of options, and the quality of their portfolio managers, stand out as two key reasons why this company has seen its market share remain robust in this fast-moving space.
With that said, here are three top Schwab ETFs I think investors would do well to consider right now.
Schwab U.S. Large-Cap ETF (SCHX)
For investors concerned around the quality of the companies in their overall portfolio, focusing on fundamental strength ought to be a top focus for those thinking long-term. One such ETF which provides investors with inherent underlying quality (based on the size of the holdings in this fund) is the Schwab U.S. Large-Cap ETF (SCHX | SCHX Price Prediction).
This fund is tailored toward investors who believe that size matters in the world of investing. In large part, that’s generally true. Companies with some of the largest market capitalizations tend to move in a less volatile fashion over the near-term. And so long as their durable competitive advantages (or moats, as Warren Buffett would say) remain intact, the earnings growth upside such companies can provide can often beat those of smaller and mid-cap stocks in the market.
Over the past decade, SCHX has delivered solid returns to investors of more than 12%, with this fund delivering even better performance of more than 18% upside annually over the past five years. It’s likely that we’ll see some sort of deterioration on this front moving forward, if we are indeed heading into a recession. But at an expense ratio of just 0.03% (three basis points), this is a very inexpensive option for those seeking high quality large-cap exposure right now.
Schwab U.S. Large-Cap Value ETF (SCHV)
Another top ETF that’s geared toward investors seeking greater value at a time when so many stocks are valued near the upper echelon of historical ranges is the Schwab U.S. Large-Cap Value ETF (SCHV). Much like SCHX, this ETF focuses on the largest stocks in the U.S. Large-Cap Value Total Stock Market Index. And as its name suggests, SCHV is tilted primarily toward value stocks, or those companies with attractive valuations relative to their fundamentals.
In the large-cap world, investors have largely benefited from holding some of the largest growth stocks in recent years. However, for investors who think this underlying dynamic is one that could be shifting, this is a top ETF I think is worth considering.
Combining both the size and value factor can provide meaningful upside in downturns, such as those we’re experiencing right now. Indeed, the fact that SCHV is down only 4% on a year-to-date basis is a testament to the revamped capital flows in the market over recent weeks. I think these trends are likely to continue, and value could outperform growth for quite a while moving forward.
For investors who are thinking the same, SCHV looks attractive at its current expense ratio of just four basis points (0.04%).
Schwab Fundamental U.S. Broad Market ETF (FNDB)
Last, but certainly not least, we stick with our trend of focusing on ETFs with the highest-quality holdings with the Schwab Fundamental U.S. Broad Market ETF (FNDB). This ETF is tailored to those seeking to add more defensiveness to their portfolios, given that this ETF is structured based on a few key factors (sales, cash flow, and dividend growth over time). These factors are generally considered to be much more correlated to stock price performance over time, especially when juxtaposed against market capitalization (the key weighting metric of most ETFs).
For investors looking to tilt their holdings toward companies with strong underlying business models that can withstand times of stress, looking at fundamental growth factors and the given cash flow trajectories of the stocks in their portfolio is a great place to start.
In my view, this fund’s annualized returns of around 11% per year over the past decade could undersell the fund’s performance potential in a downturn. On an adjusted basis, I’d expect this ETF to outperform most index ETFs over the next five to ten years, if a recession does indeed materialize.
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