SCHM: Falling Behind Other Mid-Cap Options

An analysis of the Schwab U.S. Mid-Cap ETF (SCHM) finds that it consistently underperforms both its index and peer mid-cap ETFs like REGL and MDY, despite its low expense ratio and broad diversification. Key metrics, including higher valuation ratios and lower long-term earnings growth, make SCHM less attractive compared to alternatives. The recommendation is to consider REGL or MDY instead of SCHM for mid-cap exposure.

Analysis

The Schwab U.S. Mid-Cap ETF (SCHM) exhibits consistent underperformance relative to both its benchmark index and peer mid-cap exchange-traded funds, such as the ProShares S&P MidCap 400 Dividend Aristocrat ETF (REGL) and the SPDR S&P MidCap 400 ETF Trust (MDY). Despite SCHM's stated advantages of a low expense ratio and broad diversification, its historical performance consistently lags. Key financial metrics further undermine SCHM's attractiveness, revealing higher valuation ratios and lower projected long-term earnings growth when compared to alternative mid-cap investment vehicles. This pattern of underperformance extends across multiple timeframes and includes lagging the S&P 500, making SCHM a less compelling option for investors seeking mid-cap exposure, even considering its lower fees.

Key Decisions for Investors

• Given SCHM's persistent underperformance and less favorable fundamental metrics, including higher valuation ratios and lower long-term earnings growth, investors should avoid initiating new positions in this ETF.
• For dedicated mid-cap equity exposure, alternative ETFs such as REGL or MDY warrant consideration, as they are presented as having more attractive characteristics and performance.
• Investors currently holding SCHM may find it prudent to re-evaluate their position in light of its consistent lag compared to its index, peers, and even broad market benchmarks like the S&P 500.