2023-08-24 13:06:52 ET
Summary
- SCHF is a cost-effective ETF that provides broad exposure to international equities, offering diversification from an overheated US market.
- The fund has a diverse portfolio of 1,543 securities, with a focus on large- and mid-cap stocks, providing stability and reducing risk.
- SCHF has a balanced sector and geographic allocation, allowing investors to gain exposure to various economies and industry dynamics.
The stock market is filled with individuals who know the price of everything, but the value of nothing. - Phillip Fisher
Investing in a diverse range of international equities can serve as a strategic move for investors looking to diversify their portfolios, especially when domestic markets appear overvalued or volatile. One such instrument that offers this broad exposure is the Schwab International Equity ETF (SCHF) that I think is a good, cost-effective way of moving away from an overheated US market.
Overview of SCHF
SCHF is an exchange-traded fund (ETF) managed by Charles Schwab. The fund aims to track, as closely as possible, the total return of the FTSE Developed ex US Index, before fees and expenses. This index represents a wide range of large and mid-cap stocks from developed markets, excluding the United States.
The fund was launched on November 3, 2009, and as of June 30, 2023, it has amassed a substantial asset base of over $31 billion. It is characterized by a low expense ratio of 0.06%, making it a cost-effective investment option for those seeking international equity exposure.
Portfolio Composition
The portfolio of SCHF is composed of 1,543 individual securities, providing investors with broad diversification across various sectors and geographies. The top ten holdings, which include multinational giants like Nestle SA (NSRGY), ASML Holding NV (ASML), and Samsung Electronics Co. Ltd. (SSNLF), account for approximately 12.54% of the total portfolio.
The portfolio leans heavily toward large- and mid-cap stocks, with more than 98% of the fund's assets invested in such companies. These businesses are typically more mature and stable than smaller companies, potentially reducing the overall risk profile of the fund.
Sector and Geographic Allocation
SCHF has a diverse sector allocation, with Financials, Industrials, and Consumer Discretionary being the most heavily weighted sectors. These sectors account for approximately 45.09% of the portfolio, providing a balanced exposure to different industry dynamics.
From a geographic perspective, Japan and the United Kingdom are the two most heavily represented countries, accounting for more than 34% of the portfolio. Other significant allocations include France, Canada, and Switzerland. This broad geographical distribution allows investors to gain exposure to various economies, each with its unique growth drivers and economic cycles.
Performance Analysis
Over the past decade, SCHF has delivered modest returns, reflecting the overall performance of the international equity markets. As of June 30, 2023, the fund has achieved a compound annual growth rate of 5.54% since inception, and a one-year return of 17.11%.
In terms of risk-adjusted performance, SCHF has a fairly favorable profile. Over a three-year period, the fund has a Sharpe ratio of 0.43, suggesting a reasonable level of return for the level of risk taken. Its standard deviation, a measure of portfolio volatility, stands at 18.24%.
While SCHF offers diversified exposure to international equities, it's not without risks. The fund's heavy exposure to certain sectors and geographies may make it susceptible to economic and geopolitical uncertainties in those areas. For instance, the ongoing Russia-Ukraine conflict could potentially impact the fund's European holdings. Additionally, the fund's performance is likely to be influenced by fluctuations in foreign currencies, as its investments are denominated in various currencies.
Moreover, investors should be mindful of the fact that the relatively low valuation of international equities, compared to U.S. stocks, does not guarantee superior returns. A multitude of factors, including economic growth, corporate earnings, and geopolitical events, can influence the performance of these equities.
Investor Takeaway
For investors seeking to diversify portfolios beyond U.S. equities, SCHF presents a compelling option. With its broad international exposure, and balanced sector allocation, the fund offers the potential for both capital appreciation and income generation. However, the inherent risks associated with international investing, including currency and geopolitical risks, should be carefully considered before making an investment decision.
It's also worth noting that SCHF's exposure to large-cap tech is limited compared to U.S. focused ETFs. This could be beneficial for investors looking to reduce their exposure to this sector, which has seen significant growth in recent years and may be subject to market corrections.
For further details see:
SCHF: A Solid International Fund That Needs Value To Outperform