The Schwab U.S. Dividend Equity ETF (SCHD) has built a reputation among income-focused investors for its consistent dividends, low fees, and exposure to high-quality companies. However, beneath the surface, several structural and macro challenges make SCHD a likely long-term underperformer.
One major concern is tax inefficiency due to double taxation on dividends, which reduces overall returns compared to tax-deferred capital gains strategies. Additionally, SCHD’s structure is underweight in AI, missing out on significant long-term growth opportunities from transformative technologies and sectors like energy, where AI has a secondary impact.
Rising long-term interest rates are also posing sector-specific challenges, particularly for financials within SCHD’s portfolio. Furthermore, investors can match the SCHD income by holding SPY and selling covered calls, reducing the need to hold this specific ETF.
It’s essential to note that past performance is not a guarantee of future results, and no recommendation or advice is being given on whether any investment is suitable for a particular investor. The views expressed above may not reflect those of Seeking Alpha as a whole.
Source: https://seekingalpha.com/article/4750132-schd-3-reasons-it-likely-underperforms