TNTTF - SCHY: Outperforming Its Peers

• 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.

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 ( 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.

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%.

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.

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 ).

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 %).

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.

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