Many experienced investors know that it’s hard to beat the market over time. When they say this, they mean that it’s difficult to pick stocks and ETFs that can sustainably outperform broader market indices like the S&P 500 (SPX) on a long-term basis.
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This is with good reason — the S&P 500 sets a high bar with an annualized total return of just over 10% going all the way back to 1957 when it took on its current incarnation with 500 components.
Let’s take a look at one popular ETF, the Schwab U.S. Large-Cap Growth ETF (NYSEARCA:SCHG), and see if it’s worthy of a spot in investors’ portfolios by being one of the rare ETFs that beats the odds and can help investors outperform the market over time.
What Does SCHG ETF Do?
SCHG is a growth-oriented ETF from Charles Schwab (NYSE:SCHW) that has about $18.7 billion in assets under management. According to Schwab, the ETF seeks to replicate the performance of “the total return of the Dow Jones U.S. Large-Cap Growth Total Stock Market Index” before fees and expenses.
Blue-Chip Holdings
Because it invests in an index composed of large-cap U.S. growth stocks, most investors will likely be familiar with SCHG’s top holdings, which skew largely towards the mega-cap growth stocks that lead today’s stock market. Below, you’ll find a list of SCHG’s top 10 holdings using TipRanks’ holdings tool.
Apple (NASDAQ:AAPL) is SCHG’s largest holding with a 14.1% weighting, followed closely by Microsoft (NASDAQ:MSFT), which has a 12.6% weighting. Amazon (NASDAQ:AMZN), Nvidia (NASDAQ:NVDA), and Alphabet (NASDAQ:GOOGL) round out the top five. However, it’s not all tech stocks, as UnitedHealth Group (NYSE:UNH) and Visa (NYSE:V) take the final two spots in SCHG’s top 10.
SCHG is diversified in that it owns many stocks, with 243 total holdings. However, its top 10 holdings account for 55.5% of the fund, making the ETF a bit top-heavy, especially when considering that Microsoft and Apple combine to account for over a quarter of SCHG’s total assets.
This is a strong group of holdings, as five of the 10 feature Smart Scores of 8 out of 10 or better. The Smart Score is TipRanks’ proprietary quantitative stock scoring system. It gives stocks a score from 1 to 10 based on eight market key factors. The score is data-driven and does not involve any human intervention. A Smart Score of 8 or above is equivalent to an Outperform rating. SCHG itself has an outperform-equivalent ETF Smart Score of 8.
Is SCHG Stock a Buy, According to Analysts?
Turning to Wall Street, SCHG has a Moderate Buy consensus rating, as 68.04% of analyst ratings are Buys, 28.42% are Holds, and 3.54% are Sells. At $78.98, the average SCHG stock price target implies 7.4% upside potential.
Impressive Track Record
Ultimately, you want to evaluate how any investment has performed over the long term, and SCHG does not disappoint in this regard. As of the end of May, the growth-oriented ETF posted a scorching three-year annualized total return of 18.5%.
Zooming out to a five-year time frame, SCHG cooled down a bit from that red-hot rate but still posted an impressive five-year annualized return of 13.5%. Going out even further, over the past 10 years, SCHG upped this return to 14.4% on an annualized basis. Going all the way back to its inception in 2009, SCHG has returned 14.2% on an annualized basis.
As you can see, SCHG has posted double-digit returns on an annualized basis for more than 10 years, making this ETF a long-term winner. It’s hard to find fault with these types of results, and these are the types of long-term returns that can help investors to grow their portfolios significantly over time.
These total returns also mean that SCHG is a rare ETF that can say it beats the broader market over time. As of the end of May, the Vanguard S&P 500 ETF (NYSEARCA:VOO), a good proxy for the S&P 500, had annualized total returns of 12.8%, 11%, and 11.9% on a three-, five- and 10-year basis, respectively, meaning that SCHG beat the S&P 500 over all three time frames.
Alternatively, because it features large-cap growth and tech stocks so heavily, it is also worth comparing SCHG to a Nasdaq ETF like the Invesco QQQ Trust (NASDAQ:QQQ), which invests in the Nasdaq 100 Index (NDX).
SCHG handily beat QQQ over the three year timespan, with the aforementioned 18.5% annualized return versus QQQ’s 15%. However, going out to five years, QQQ’s 16.2% return beats SCHG’s 13.5%. Going all the way out to 10 years, QQQ also outperformed SCHG with an 18% return to SCHG’s 14.4%.
As you can see, SCHG has been better than QQQ in recent years, but QQQ has the edge when expanding the time frame out to five and 10 years. However, at the end of the day, these both look like great ETFs.
Below, you can take a look at a comparison of SCHG, VOO, and QQQ using TipRanks’ ETF Comparison Tool, which lets investors compare up to 20 ETFs at a time across a wide variety of criteria.
Hard to Beat These Fees
In addition to proving its mettle as a strong performer over time, SCHG is also attractive because of its low fees. With an expense ratio of just 0.04%, an investor putting $10,000 into SCHG would pay just $4 in fees in year one — less than a cup of coffee at many places nowadays.
Assuming SCHG gains 5% a year going forward and the current fees stay the same, an SCHG investor would pay just $51 in fees over the course of the decade, making this a cost-effective ETF that helps investors to preserve and grow the principal of their investment over time.
For the sake of comparison, QQQ’s 0.2% expense ratio is actually a very reasonable one, but using the same parameters, after 10 years, an investor would pay $255 in fees, or about five times as much as they would pay with SCHG.
Investor Takeaway
It’s hard to beat the S&P 500 over the long term, so when you find an ETF that does, you want to pay attention. With a long history of beating the broader market, high-quality blue-chip holdings, and investor-friendly fees, SCHG looks like a solid building block for investors to make a core piece of their long-term portfolios.
