The Schwab US Dividend Equity (SCHD) ETF is one of the most popular funds in the market, thanks to its high yield and a strong track record of dividend growth. Over the years, it has grown and attracted over $47 billion in assets.
In a recent article, I recommended that SCHD investors should also allocate some cash to dividend growth ETFs like the iShares Core Dividend Growth (DGRO) and Vanguard Dividend Appreciation Fund (VIG). And on Friday, I also recommended buying the Pacer Cash Cows 100 ETF (COWZ).
These three ETFs have unique characteristics that can complement the SCHD fund. For example, COWZ invests in companies with a proven record of growing their free cash flow (FCF), the most important number watched by most investors.
VanEck Morningstar Wide Moat ETF is another alternativeA key concern for the Schwab US Dividend Equity ETF is that it lacks technology companies in its portfolio. As a result, it tends to underperform other large funds like Invesco QQQ and SPDR S&P 500 ETF (SPY).
One alternative would be to invest in Schwab US Large-Cap Growth ETF (SCHG), which tracks big companies with a record of revenue growth. My concern with this fund is that it is extremely exposed to the tech sector. Information technology companies account for 45.46% of the fund, with Apple and Microsoft accounting for ~24% of the fund. This makes it a high-risk fund if tech stocks plunge.
Therefore, the MOAT ETF by VanEck seems like a good alternative. For one, the fund invests in quality companies that have a substantial moat in their key industries. Its sector breakdown is also more balanced, with tech stocks having a 21.6% share. Tech is followed by health care, financials, industrials, and consumer discretionary.
MOAT industries
Unlike SCHG, no single company accounts for over 10% of the fund. Comcast, its biggest constituent, has a 2.74% share of the fund. Other top companies in the MOAT ETF are Alphabet, Tyler Technologies, Gilead Sciences, Wells Fargo, and Intercontinental Exchange (ICE).
All these funds have a moat in their industries. Alphabet is the biggest player in digital marketing while Tyler Technologies has a moat in public sector software. Gilead is a major player in key illnesses like HIV while ICE owns the biggest six clearing houses and the NYSE.
MOAT performanceA key thing to look when investing in an ETF is its historic performance. While past performance is not a good indicator of future performance, it can help you gauge a fund’s quality. The MOAT ETF has jumped by more than 270% since its inception in 2012.
Most importantly, the MOAT ETF has outperformed the S&P 500 index. Its average annual returns per year since inception is 14.33 compared to S&P 500’s 13.1%. Its dividend income has also been growing. Its annual distribution has jumped from $0.13 in 2012 to $0.82. Therefore, I believe that SCHD investors should buy MOAT, which I believe is a Buffett-styled ETF.
The post Dear SCHD investors, avoid SCHG and buy MOAT ETF instead appeared first on Invezz.
