SCHY: Outperforming Its Peers

Summary

  • SCHY is an international, ex-U.S. dividend ETF.
  • The heaviest country is the U.K. with over 20% of asset value.
  • About 45% of the fund is in 3 sectors: consumer staples, communication and financials.
  • The fund is 15 months old, but the underlying index beats popular competitors in a 10-year back-test.
  • Looking for a helping hand in the market? Members of Quantitative Risk & Value get exclusive ideas and guidance to navigate any climate. Learn More »

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This dividend exchange-traded fund ("ETF") article series aims at evaluating products regarding the relative past performance of their strategies and quality of their current portfolios. As holdings and their weights change over time, reviews may be updated when necessary.

SCHY strategy and portfolio

The Schwab International Dividend Equity ETF (NYSEARCA:SCHY) is one of the newest dividend ETFs. It has been tracking the Dow Jones International Dividend 100 Index since 04/29/2021. It has a portfolio of about 100 stocks (135 holdings including cash equivalents in various currencies), a distribution yield of 2.83% and a total expense ratio of 0.14%.

As described in the prospectus by Schwab, eligible companies are incorporated outside the U.S. and “must have sustained at least 10 consecutive years of dividend payments, have a minimum float-adjusted market capitalization of $500 million USD initially ($400 million USD for those stocks already in the index at reconstitution) and must meet minimum liquidity criteria. Eligible stocks are ranked based on four fundamental characteristics – cash flow to total debt, return on equity, indicated dividend yield and 5-year dividend growth (…) A volatility screen is then applied to the 400 highest ranked securities to ultimately determine those 100 securities with the highest resultant composite scores which are selected for the index.”

SCHY mitigates risks by filtering stocks on quality and volatility factors. Moreover, it guarantees diversification by fixing maximum weights on rebalancing: 4% by constituent, 15% by sector, and an aggregate 15% for all emerging markets. The index is reconstituted annually and rebalanced quarterly.

The U.K. is the heaviest country with 21.4% of asset value , followed by Australia (11.8%) and Switzerland (10.2%). The next chart lists the top 10 countries with an aggregate weight of 84.9%. Regarding geopolitical risks, China and Taiwan weigh 7.3% together.

SCHY countries

SCHY countries (Chart: author with Fidelity data)

The top three sectors are between 14.3% and 15.4%: consumer staples, communication and financials. Industrials and utilities follow with about 11-12% each. Other sectors are below 9%.

SCHY sectors weights

SCHY sectors weights (Chart: author with Fidelity data)

Large cap companies represent 91.4% of the portfolio and the rest is in mid-caps.

The top 10 holdings, listed below, represent 38.8% of asset value. Constituents are capped at 4% every time the underlying index is reconstituted, but price variation may result in weight slippage. The top holding weighs 4.48% as of writing. For convenience, tickers in the next table are U.S. symbols, whereas the fund holds shares in the primary exchanges.

Ticker

Name

Weight%

Country

Sector

UL

UNILEVER PLC

4.48

GB

Consumer Staples

OTCPK:DPSGY

DEUTSCHE POST AG

4.41

DE

Industrials

OTCQX:RHHBY

ROCHE HOLDING PAR AG

4.32

CH

Health Care

OTCPK:WFAFY

WESFARMERS LTD

4.30

AU

Consumer Discretionary

OTCPK:BAESY

BAE SYSTEMS PLC

4.14

GB

Industrials

BTI

BRITISH AMERICAN TOBACCO PLC

3.73

GB

Consumer Staples

OTCPK:ENLAY

ENEL

3.43

IT

Utilities

TD

TORONTO DOMINION

3.35

CA

Financials

BHP

BHP GROUP LTD

3.33

AU

Materials

RIO

RIO TINTO LTD

3.32

AU

Materials

Past performance compared to competitors

SCHY has only 14 months of existence, so it can't be judged on past performance. For what it’s worth, the next table compares it with another international dividend ETF: the First Trust Dow Jones Global Select Dividend ETF (FGD), and with an international dividend growth ETF: the Vanguard International Dividend Appreciation ETF (VIGI).

since 5/1/21

Total Return

Annual.Return

Drawdown

SCHY

-7.34%

-5.89%

-18.86%

FGD

-9.19%

-7.38%

-21.33%

VIGI

-9.20%

-7.39%

-22.95%

Data calculated with Portfolio123

None of them looks great compared to the S&P 500 (SPY), which is close to flat on the same period, but SCHY has been the most resilient and the less volatile of these 3 funds.

The next table compares total returns of the underlying index (data from S&P Global) with FGD and VIGI on longer periods (annualized returns in %).

3 Years

5 Years

10 Years

SCHY Index

9.29

6.85

7.72

FGD

5.96

2.46

4.68

VIGI

7

5.34

SCHY index beats FGD and VIGI on all periods where data are available. However, past performance may not be representative of future returns.

Takeaway

SCHY has a portfolio of about 100 dividend stocks of large and mid-cap companies listed outside the U.S. The methodology filters constituents with quality and volatility factors, then set limits for the weights of constituents, sectors and emerging markets. Asset value is mostly in developed countries and direct exposure to geopolitical risks is acceptable. SCHY underlying index outperforms FGD and VIGI in total return. For transparency, my equity investments are split between a passive ETF allocation (SCHY is not part of it) and an actively managed stock portfolio, whose positions and trades are disclosed in Quantitative Risk & Value.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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This article was written by

Fred Piard profile picture
14.42K Followers
Data-driven portfolios and risk indicators.
Author of Quantitative Risk & Value and three books, I have been investing in systematic strategies since 2010. I have a PhD in computer science, an MSc in software engineering, an MSc in civil engineering and 30 years of professional experience in various sectors. My aim is making simple and efficient quantitative investing techniques available to my followers. Quantitative models can make investment decisions faster, reproducible and emotionless by focusing on relevant information in the middle of market noise. Moreover, models can be refined to meet specific risk tolerance and objectives. 

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I am an individual investor and an IT professional, not a finance professional. My writings are data analysis and opinions, not investment advice. They may contain inaccurate information, despite all the effort I put in them. Readers are responsible for all consequences of using information included in my work, and are encouraged to do their own research from various sources.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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