SCHD Will Continue To Be A Bitter Disappointment... Unless The World Falls Apart

In a market defined by relentless growth over the past decade, the Schwab U.S. Dividend Equity ETF (SCHD) has emerged as a paradoxical investment: a stalwart in turmoil but a laggard in calm. While its focus on high-dividend, low-volatility stocks has shielded investors during downturns, its inability to keep pace with broader equity gains in rising markets has left many questioning its value. The data tells a stark story: SCHD has underperformed the S&P 500 ETF (SPY) across nearly every meaningful time horizon, from YTD 2024 to its 10-year track record. Yet, its resilience in crises—from the 2020 pandemic crash to the 2022 tech selloff—hints at a hidden utility. The question for investors is whether SCHD’s defensive traits outweigh its growth limitations, or if its "bitter disappointment" label will endure unless the world once again "falls apart."

The Numbers Tell a Tale of Trade-offs

SCHD’s performance gap with SPY is undeniable. Over the past year through April 2025, SPY returned 24.34%, while SCHD managed just 15.84%. Even over a decade, SPY’s 12.93% annualized return edged out SCHD’s 11.32%. The ETF’s dividend yield—3.44% as of mid-2024—offers a lifeline for income-focused investors, but its higher expense ratio (0.06% vs. SPY’s 0.09%) and Sharpe ratio of 1.50 (vs. SPY’s 2.25) suggest poorer risk-adjusted returns.

Why SCHD Struggles in Bull Markets

SCHD’s strategy prioritizes stability over growth, targeting the Dow Jones U.S. Dividend 100 Index—a basket of firms with at least 10 years of consecutive dividend increases. This focus on mature, slow-growth sectors like utilities (23% of Franklin’s LVHD, a peer) and consumer defensive stocks creates a drag in rising markets. For example, during the tech-driven 2021 rally, SCHD gained only +18.01% in its best three-month stretch, lagging behind SPY’s broader sector exposure. Meanwhile, its higher short-term volatility (3.15% vs. SPY’s 2.59%) undermines its low-risk reputation in calm environments.

Defensive Armor in Bear Markets

Yet in crises, SCHD’s focus on dividend resilience shines. During the Q4 2022 selloff, it lost -21.55% over three months—still less than SPY’s -23% decline. Its max drawdown of -33.37% since 2010 contrasts with SPY’s -55.19%, a gap that widens during prolonged downturns. Analysts note that its top holdings in defensive sectors—such as Murphy Oil (MUR) and Inter Parfums (IPAR)—offer ballast when growth stocks falter. As TipRanks’ "Moderate Buy" rating suggests, SCHD’s appeal lies not in outperforming but in preserving capital during market stress.

The 2025 Crossroads: Growth or Safety?

Recent data underscores SCHD’s dilemma. While it rallied +5.7% in five days in mid-April 2025, its 12-month return of +3.14% paled against SPY’s 24.34% annual gain. Morningstar’s focus on "quality over yield" further complicates its value proposition: investors seeking both income and growth may find better options in hybrid strategies like the FlexShares Quality Dividend ETF (QDF). However, as trade wars and regulatory shifts create uncertainty, SCHD’s 4.46% yield advantage over international peers and 90% allocation to dividend stalwarts position it as a fallback for risk-averse portfolios.

Conclusion: SCHD’s Place in the Portfolio

SCHD is neither a disappointment nor a miracle—it is a defensive tool with limitations. Its dividend yield and downside protection make it a viable hedge against volatility, but its structural underperformance in bull markets demands honest acknowledgment. Investors should consider SCHD as part of a diversified strategy: pairing it with growth-oriented ETFs like SPY or sector plays to balance risk.

The ETF’s Smart Score of 7 and analyst consensus reflect this duality—a fund that will disappoint growth hunters but reward those who prepare for turbulence. As the market’s pendulum swings between expansion and crisis, SCHD’s value hinges on whether investors prioritize steady income or the pursuit of outsized returns. For now, its tagline holds: success depends on the world’s willingness to fall apart.