The Yield vs. Weighting Dilemma: How to Choose Between SPSM and SCHA
Key PointsState Street SPDR Portfolio S&P 600 Small Cap ETF and Schwab U.S. Small-Cap ETF both offer low expense ratios of 0.03%.
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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