FBMS - SCHD's Reconstitution Adds Too Many Stocks With Mediocre Quant Ratings

2024-03-18 12:28:56 ET

Summary

• Schwab U.S. Dividend Equity ETF™ has undergone a major change in its holdings, eliminating and replacing 23 stocks contributing 1/5 of its dividend.
• Four of the added stocks are flagged as very risky by Seeking Alpha's Quant rating system.
• Only a handful of the added stocks rank well on Dividend Safety, Growth, Consistency, and yield.
• We explain why the SCHD ETF's index's methodology for selecting stocks is to blame for this discrepancy.

The Schwab U.S. Dividend Equity ETF™ ( SCHD ) executed its annual reconstitution this morning at the market open. Those who follow the exchange-traded fund ("ETF") closely may remember that the original announcement of what stocks would be added and deleted from SCHD at the beginning of March was botched, and the company had to issue a list of corrections on March 7. I hunted in vain for the complete list of stocks to be added and deleted at that time, but couldn't find it. The announcement of the corrections told us that Schwab's clients were being informed of the correction. It is only now that it is clear to the general public which stocks are being added and deleted.

This Year's Reconstitution Made Huge Changes to SCHD's Holdings

Unlike last year , the changes to SCHD's holdings are major this year. Almost a quarter of SCHD's stocks were eliminated, 23 out of the full 100 stock holdings. And also, unlike the case of last year when the additions and deletions had a minor effect on the composition of SCHD as a whole as most of the holdings affected were held in tiny quantities, this year's changes make a great deal of difference in the ETF's composition....

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