The Yield vs. Weighting Dilemma: How to Choose Between SPSM and SCHA
State Street's fund holds fewer stocks but delivers higher income and lower volatility, while Schwab offers broader diversification across 1,750 holdings.
The State Street SPDR Portfolio S&P 600 Small Cap ETF (SPSM) and the Schwab U.S. Small-Cap ETF (SCHA) are two popular exchange-traded funds offering access to U.S. small-cap stocks. While both funds have similar expense ratios of 0.03%, they differ in their approach to indexing and yield.
SPSM is focused on a curated list of 608 small-cap stocks, holding about 600 companies. It is less top-heavy compared to SCHA, which tracks nearly 1,750 holdings across 1,748 stocks. SCHA's approach results in its top 10 stocks contributing around 10% of its exposure. Both funds have outperformed the S&P 500 over the past year, with SPSM achieving a 24% total return (4.4% CAGR) and SCHA delivering a 26% total return (4.8% CAGR).
When it comes to income, SPSM offers a higher dividend yield at 1.5%, compared to SCHA's 1.1%. This makes SPSM more attractive for investors seeking regular income from their investments. However, SCHA still provides a modest cash flow for income-focused investors.
Ultimately, the choice between SPSM and SCHA depends on the investor's preference and investment goals. Those who prioritize a higher dividend yield may lean towards SPSM, while others who prefer a broader diversification with more stocks may opt for SCHA. Both funds offer an affordable way to invest in small-cap stocks, making them suitable for cost-conscious investors.
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