The SCHD ETF has done well this year, as it outperformed mainstream funds like those tracking the S&P 500, Nasdaq 100, and the Dow Jones indices. It has risen by 2.8% this year, while the three blue-chip indices have dropped by over 1%.
Why the SCHD ETF has beaten blue-chip indices
The SCHD ETF has done well for two main reasons. First, as we wrote recently, the main reason why US stocks have crashed is not Donald Trump’s tariffs. Instead, it is the general fear that the AI bubble has burst and that US tech stocks have been highly valued.
This explains why many large technology companies have surged in the past few months. This includes well-known brands like NVIDIA, Salesforce, AMD, and Apple. All companies in the Magnificent 7 group have dropped sharply this year. On the other hand, companies that are highly vulnerable to Donald Trump’s tariffs, like Ford and Kroger have done well.
SCHD is mostly unaffected by the challenges in technology and AI industry because it only has a small exposure in the tech industry. Technology companies account for just 10% of the fund.
Second, the SCHD ETF has done well because the biggest companies in the fund are largely unaffected by Trump’s tariffs. The biggest names in the fund are in the pharmaceutical sector, and are firms like AbbVie, Amgen, Bristol-Myers Squibb, and Pfizer.
While Donald Trump has vowed to add tariffs on imported drugs, these companies will not be affected since patients will continue to fill their prescriptions. Most of these drugs are paid for by insurance companies, which may decide to hike prices a bit.
The other big companies in the SCHD ETF is Coca-Cola, Chevron, Verizon, Blackrock, and Altria. Coca-Cola is widely seen as an all-weather company that does well in all market conditions.
Chevron will also not be affected because it operates in the oil and has industry, while Altria’s business will continue doing well.
SCHD ETF reconstitution ahead
The next main catalyst for the SCHD ETF will be the Dow Jones Index 100 Index reconstitution. The SCHD tracks this index, which undergoes a reconstitution each year.
This reconstitution has already happened, but the real execution will happen on March 31st. As such, SCHD investors may be interested in the companies that enter the fund and those that exit.
A notable thing that happened last year is that the SCHD fund removed Broadcom, which was a mistake as the stock surged.
Several companies in the SCHD ETF will be removed this year. The most notable ones are Pfizer, Blackrock, US Bancorp, M&T Bank, KeyCorp, Huntington Bancorporation, Synovus, H&R Block, Tapestry, and DICK’s Sporting Goods.
What is notable is that most of these companies are in the regional banks, an industry that has come under pressure in the past few years.
The SCHD ETF will see an entry of some well-known companies across various industries. Some of the most notable new entry companies are Merck, ConocoPhilips, Target, General Mills, Archer-Daniels-Midlands, Moelis, Flowers Foods, Signet Jewelers, and Interpafums. Other companies that will be part of the SCHD fund are Federated Hermes, Autoliv, Schlumberger, and Halliburton.
Therefore, there is a likelihood that the SCHD ETF will have some volatility after the reconstitution happens. In the long-term, however, its performance will likely continue as it has done in the past.
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