In the highly competitive arena of large-cap exchange-traded funds (ETFs), two formidable contenders have emerged: SCHX and VOO. Boasting total assets of over $29B and $264B respectively, these funds have established their credibility and size in the market.
With SCHX tracking the Dow Jones US Total Stock Market Large-Cap index and VOO following the S&P 500 index, both offer investors an enticing opportunity for exposure in the large-cap space.
While they share similarities such as low fees and tight trading spreads, it is crucial to examine the nuances that differentiate them.
This article aims to analyze their indexing methods, performance, volatility, similarities, risks, and limitations, as well as their dividend yields, to help investors determine which titan reigns supreme in their portfolio.
Key Takeaways
- Both SCHX and VOO are large-cap exchange-traded funds with low fees and tight trading friction.
- Both funds closely track their respective indexes and have similar performance, delivering a CAGR of around 12.8%.
- SCHX has slightly higher volatility and a smaller number of holdings compared to VOO.
- Both funds are exposed to macroscopic risks facing the overall U.S. economy, and investors should consider their risk profiles and investment timeframes.
Indexing Method
In terms of their indexing method, both SCHX and VOO track different stock market indices.
VOO is based on the S&P 500 index, which represents the 500 largest U.S. companies.
On the other hand, SCHX aims to track the Dow Jones U.S. Large-Cap Total Stock Market Index.
Both funds have overlapping holdings of about 500 stocks, which means they have some common investments.
However, they are dominated by a handful of mega-cap companies.
It is important to note that their indexing method plays a crucial role in portfolio diversification.
By investing in different indices, investors can achieve a broader exposure to the large-cap space, reducing concentration risk.
This diversification can help mitigate potential losses and enhance the overall performance of the portfolio.
Performance and Volatility
Continuing the comparison from the previous subtopic, the performance and volatility of SCHX and VOO have been closely monitored to determine which fund reigns supreme. Both funds have delivered strong returns over the long term, with VOO slightly outperforming SCHX with a compound annual growth rate (CAGR) of 12.97% compared to SCHX's 12.81%. However, it's worth noting that SCHX has exhibited slightly higher volatility, with an average of 14.15% compared to VOO's 13.99%. This can be attributed to SCHX's smaller holdings. Despite this difference, the two funds have closely tracked each other in terms of performance, indicating that they are both resilient to market volatility. The following table provides a summary of the comparison of returns and the impact of market volatility for SCHX and VOO:
| Fund | CAGR (%) | Volatility (%) |
|---|---|---|
| SCHX | 12.81 | 14.15 |
| VOO | 12.97 | 13.99 |
Both SCHX and VOO have demonstrated strong performance and have proven to be reliable investment options in the large-cap space. Investors should consider their risk profiles and investment timeframes when choosing between the two funds.
Similarities Between SCHX and VOO
Both SCHX and VOO share several key similarities as prominent large-cap exchange-traded funds (ETFs):
- Comparison of expense ratios: Both SCHX and VOO have low fees of 0.03%. This makes them cost-effective options for investors seeking exposure to the large-cap space.
- Liquidity and trading volume: Both funds offer tight trading friction and have ample liquidity. This means that investors can easily buy and sell shares of SCHX and VOO without significantly impacting the market price.
- Similar investment objectives: While SCHX tracks the Dow Jones U.S. Large-Cap Total Stock Market Index and VOO tracks the S&P 500 Index, both funds aim to provide investors with exposure to the performance of large-cap companies in the US market.
These similarities make SCHX and VOO attractive options for investors looking for diversified exposure to the large-cap segment of the market with low expenses and high liquidity.
Risks and Limitations
With regards to risks and limitations, investors must consider the potential drawbacks of both SCHX and VOO as prominent large-cap ETFs. Both funds are exposed to macroscopic risks facing the overall U.S. economy, including the potential for a recession. Signs of a recession, such as the inversion of the yield curve, pose a risk to both funds. Additionally, headwinds reported by leading bellwether stocks like JPMorgan and Walmart are also a concern.
It is important for investors to consider their risk profiles and investment timeframe when evaluating these ETFs. Furthermore, SCHX has higher volatility risks compared to VOO, which may be a consideration for some investors.
It is crucial to carefully assess the impact of macroeconomic factors on both funds before making investment decisions.
Dividend Yields and Investment Decisions
Dividend yields play a crucial role in guiding investment decisions for both SCHX and VOO. Here are three key factors to consider when evaluating dividend yields:
- Tax implications: Investors should be aware of the tax treatment of dividend income. Different tax rates may apply to qualified and non-qualified dividends, which can impact after-tax returns.
- Market index composition: The composition of the market index can influence dividend yields. Both SCHX and VOO track different indexes, with SCHX focusing on the Dow Jones US Total Stock Market Large-Cap index and VOO tracking the S&P 500 index. Understanding the constituents of these indexes can help investors assess the potential dividend income.
- Adjustments for external factors: Dividend yields may not always reflect business fundamentals due to factors like tax law and the political climate. Investors should consider these external influences and make appropriate adjustments before using dividend yields as an indicator of true owner's earnings.
Frequently Asked Questions
What Is the Difference Between the Dow Jones US Total Stock Market Large-Cap Index and the S&P 500 Index?
The Dow Jones US Total Stock Market Large-Cap Index and the S&P 500 Index are both large-cap stock market indices. They have similarities in their focus on large-cap companies, but differ in their composition and methodology.
How Do the Top Ten Holdings in SCHX and VOO Differ in Terms of Their Composition?
The top ten holdings in SCHX and VOO differ in composition. SCHX has a higher representation of sectors like technology, healthcare, and consumer discretionary, while VOO has a higher representation of sectors like technology, financials, and healthcare.
How Do SCHX and VOO Perform in Comparison to Each Other in Both the Short Term and Long Term?
In terms of short term performance comparison, both SCHX and VOO closely track each other, delivering a compound annual growth rate (CAGR) of 12.81% for SCHX and 12.97% for VOO. For long term performance analysis, they show similar results.
What Are the Risks Associated With Investing in SCHX and Voo?
The risks of investing in SCHX and VOO include exposure to macroeconomic risks, such as a recession or market downturn, as well as specific risks associated with the performance of the overall U.S. economy and certain bellwether stocks. Investors should also consider the higher volatility risks of SCHX compared to VOO.
How Do Factors Such as Tax Law, Political Climate, and Market Index Composition Impact Dividend Yields and Investment Decisions?
Factors such as tax law, political climate, and market index composition can impact dividend yields and investment decisions. These factors can influence the profitability of companies, the stability of the market, and the overall attractiveness of dividend-paying stocks.