SCHA vs. IJR: Choosing the Optimal U.S. Small-Cap ETF for Long-Term Growth and Income

The U.S. small-cap equity market has long been a cornerstone of diversified portfolios, offering growth potential and diversification benefits. Two leading exchange-traded funds (ETFs) in this space-Schwab U.S. Small-Cap ETF (SCHA) and iShares Core S&P Small-Cap ETF (IJR)-compete for investor attention. While both provide exposure to small-cap stocks, their differences in cost efficiency, risk-adjusted returns, and dividend sustainability warrant careful scrutiny for long-term investors.

Cost Efficiency: SCHA's Edge in Fee Structure

Cost efficiency remains a critical factor in compounding returns over time. According to a report by ETF.com, SCHA charges an expense ratio of 0.04%, significantly lower than IJR's 0.06%. This 0.02% differential may seem modest but can translate into meaningful savings for investors with large allocations or those holding the ETFs for decades. For instance, over a 30-year period, a $100,000 investment in SCHA would outperform IJR by approximately $15,000, assuming identical returns and annual compounding. Both funds are categorized as low-cost options, but SCHA's fee advantage aligns with Schwab's broader strategy to reduce investor costs, a trend observed in its other ETF offerings.

Risk-Adjusted Returns: SCHA's Superior Risk Management

When evaluating risk-adjusted returns, SCHA demonstrates a more favorable profile. reveals that SCHA's Sharpe Ratio of 0.89 exceeds IJR's 0.60, indicating better returns per unit of risk. Similarly, SCHA's Sortino Ratio of 1.38 outperforms IJR's 1.01, highlighting its superior ability to manage downside risk. The Calmar Ratio further underscores this advantage, with SCHA's 0.65 ratio (returns relative to maximum drawdown) outpacing IJR's 0.40.

While both ETFs exhibit comparable volatility-SCHA at 4.02% and IJR at 3.83%- SCHA's maximum drawdown of -42.41% is notably less severe than IJR's -58.15%. This resilience, coupled with SCHA's 5.90% year-to-date return compared to IJR's 5.29%, positions SCHA as a more reliable option for investors prioritizing capital preservation amid market turbulence.

Dividend Sustainability: Mixed Signals and Strategic Considerations

Dividend sustainability, a key consideration for income-focused investors, presents a more nuanced picture. SCHA offers a dividend yield of 1.19% as of December 2025, with a recent payout of $0.130 per share. While this yield is modest, it reflects the inherent challenges of small-cap stocks, which typically prioritize reinvestment over dividends.

For IJR, the forward dividend yield stands at 1.36%, with a recent quarterly payout of $0.572 per share. However, historical data reveals volatility in its dividend consistency. For example, IJR's payouts fluctuated by 38.77% in March 2020 and saw a 76.89% growth in dividends during the 2024–2025 period. Notably, IJR's payout ratio is reported as 0%, suggesting dividends are not funded by earnings but rather by other mechanisms, such as return of capital. This raises concerns about long-term sustainability, particularly in economic downturns when small-cap companies may struggle to maintain payouts.

Strategic Implications for Investors

For long-term growth and income, SCHA emerges as the more compelling choice. Its lower expense ratio directly enhances net returns, while its superior risk-adjusted metrics reduce the likelihood of significant drawdowns. Although both ETFs offer modest dividend yields, SCHA's structural advantages-particularly its lower costs and more resilient risk profile-make it better suited for investors seeking to balance growth and income. IJR, while still a viable option, carries higher volatility and less predictable dividend sustainability, which could undermine its appeal in uncertain markets.

Conclusion

In an era where cost efficiency and risk management are paramount, SCHA's combination of low fees, robust risk-adjusted returns, and moderate dividend yields positions it as the optimal U.S. small-cap ETF for long-term investors. While IJR remains a respected player in the space, its higher costs and less consistent dividend profile make it a secondary choice. As always, investors should align their selections with their risk tolerance, income needs, and broader portfolio objectives.