The Schwab International Dividend Equity ETF (NYSEARCA:SCHY) is down about 1% so far this year, dividends included. That’s a steep 17 percentage points below the performance of the S&P 500 Trust ETF (SPY). Of course, SCHY is a foreign high-dividend portfolio, but it is still losing ground to the Vanguard FTSE All-World ex-US ETF (VEU) so far in 2024.
Moreover, SCHY has markedly underperformed the Vanguard International High Dividend Yield ETF (VYMI), a fund on which I have a buy rating, over many timeframes. I’ve been frustrated to see how poorly SCHY has done, given the general success of the US-focused Schwab U.S. Dividend Equity ETF (SCHD).
I am downgrading SCHY from a buy to a hold. Despite posting a positive total return since I last analyzed the ETF back in the third quarter of 2023, with more than three years of performance history, the strategy is now delivering robust returns.
SCHY Continues Losing Ground to Rival VYMI
According to the issuer, SCHY aims to track as closely as possible, before fees and expenses, the total return of an index composed of high dividend-yielding stocks issued by companies outside the US. The ETF is a cost-effective option for investors seeking tax efficiency. It can serve as a core or complementary part of a diversified portfolio of selected high-yield stocks with a decade-long dividend history, financial strength, and modest volatility.
Not surprisingly, SCHY’s total assets under management has not grown much in the past 10 months. It’s now up to $727 million and the ETF sports a low annual expense ratio of 0.14% - eight basis points cheaper than VYMI. SCHY also has a trailing 12-month dividend yield above VYMI’s at 6.20%. The fund’s share-price momentum grade is downright dreadful, though, at a D- per Seeking Alpha.
SCHY doesn’t rank all that well in terms of risk too. Turnover is on the elevated side at 40%, though the 1-year standard deviation is still tame at 12%. Finally, liquidity is a bright spot – average daily trading volume is a bit more than 130,000 shares, while SCHY’s median 30-day bid/ask spread can be wide at times, averaging 0.25%, so I encourage investors to use limit orders when trading the ETF.
Now let’s take a fresh look at the portfolio. The 2-star, Silver-rated fund by Morningstar plots almost exclusively in the large-cap blend and large-cap value areas of the style box. So, SCHY will likely continue to move with little correlation to the S&P 500, which is anchored in high-tech, high-growth mega caps. The bright spot here is that SCHY trades at just 10.9 times earnings. But the long-term EPS growth rate is just 6.6%, so the PEG ratio is not particularly compelling.
SCHY: Portfolio & Factor Profiles
I do, however, continue to like the diversification aspect of SCHY. No individual sector comprises more than 16% of the allocation. The problem is that the Information Technology space has been so dominant, with an enduring uptrend both on an absolute and relative basis.
For SCHY to produce alpha, we need to see a broadening out in the global stock market, perhaps even favoring Financials and Consumer Staples companies.
SCHY: Holdings & Dividend Information
Inspecting the calendar trends, I chose to look at VYMI’s seasonality since it has a much longer track record. While July has been a strong month in the past 10 years, the August through October stretch has been riddled with volatility and downside price action.
So, we are getting closer to weak seasonality. Recall last September, I suggested that a ‘buy the dip’ strategy could work with SCHY, and that generally played out well with the broad equity market bottoming in late October.
VYMI: A Weak Seasonal Stretch Ahead
The Technical Take
While so many global stocks are hitting all-time highs (the all-country world index settled at a new high ahead of the Independence Day holiday), SCHY remains well off its previous peak. Of course, including dividends, the ETF did notch untouched levels in mid-May. But assessing the technicals, what jumps out to me is a key resistance spot just below the $25 mark. That’s where SCHY has met selling pressure on a few occasions.
Notice in the chart below that there is also an uptrending support line which comes into play near $23.50. Slightly above that is the flat long-term 200-day moving average with the latest close price adjacent to that. Ultimately, SCHY needs to rally through $25 to improve what is currently a neutral technical situation. A breakdown under $23 would be bearish while longer-term support is near $22.
Overall, SCHY continues to underperform the global stocks and its absolute trend is not compelling today.
SCHY: Consolidation Pattern With $25 Resistance
The Bottom Line
I have a hold rating on SCHY. The fund has underperformed VYMI consistently. Now with more than three years of performance history in the books, the fund’s ultra-high yield appears to be reaching for riskier companies, which is a strategy not in favor across markets right now.