SPDG: This Relatively New ETF May Be SCHD's Suitable Replacement As A Core Holding

The popular Schwab U.S. Dividend Equity ETF (SCHD) has significantly underperformed the S&P 500 and peers over the past year, returning less than 1% compared to the index's 16% gain, primarily due to its lower technology sector exposure in a tech-driven market. This has prompted consideration of alternatives like the newer SPDR Portfolio S&P Sector Neutral Dividend ETF (SPDG), which, since its September 2023 inception, has nearly doubled SCHD's total returns. SPDG features a 31% technology allocation, a 19.18x P/E, and a 0.05% expense ratio, offering a 2.76% starting yield, positioning it as a viable option for income-oriented investors seeking greater upside potential if technology growth persists, albeit with higher exposure to potential tech sector corrections.

Analysis

The Schwab U.S. Dividend Equity ETF (SCHD) has significantly underperformed, delivering a price return of less than 1% over the past year against the S&P 500's 16% gain, a divergence attributed primarily to its minimal 9% allocation to the technology sector. This has spurred a search for alternatives, with the SPDR Portfolio S&P Sector Neutral Dividend ETF (SPDG) emerging as a notable contender. Since its inception in September 2023, SPDG has nearly doubled SCHD's total return, driven by its substantial 31% exposure to technology. SPDG presents a compelling valuation case with a P/E ratio of 19.18x, which is below that of its peers and the broader market's nearly 27x multiple, alongside a competitive 0.05% expense ratio. This growth-oriented positioning comes at the cost of current income, as SPDG's 2.76% starting yield is considerably lower than SCHD's 3.75%. The primary risk factor for SPDG is its high concentration in technology, making it vulnerable to a sector-specific downturn, whereas a potential decline in interest rates could increase the appeal of SCHD's higher, stable yield for income-focused investors.

Key Decisions for Investors

• Investors seeking to rotate out of SCHD due to underperformance should consider SPDG for its higher total return potential, driven by a significant 31% allocation to the technology sector.
• The decision between these ETFs represents a clear trade-off: SPDG offers greater exposure to market growth with a 2.76% yield, while SCHD provides a more defensive, higher-income profile with a 3.75% yield and lower 17.05x P/E valuation.
• An investment in SPDG is implicitly a bullish view on the technology sector; investors must be comfortable with the concentrated risk of a potential tech-led correction.
• For investors whose primary goal remains stable and growing income, SCHD's higher yield and proven dividend track record may remain more suitable, especially as SPDG's dividend growth has been reported as flat since inception.