The State Street SPDR S&P 500 Trust ETF (SPY) is the largest ETF and is a core holding of many portfolios, while the Schwab US Dividend Equity ETF (SCHD) is a popular dividend-oriented ETF. In this case, SCHD targets stocks that meet certain dividend-related requirements (as they are defined by the index provider). Even though SPY and SCHD play different roles in a portfolio, many investors compare the two funds in order to determine whether they should tilt their portfolio towards a dividends or the value factor.
A quick reminder that this site does NOT provide investment recommendations. Fund comparisons (such as this one) are not conducted to identify the “best” fund (since that will vary from investor to investor based on investor-specific factors). Rather, these fund comparison posts are designed to identify and distinguish between the fund details that matter versus the ones that don’t.
The Short Answer
SCHD only owns stocks that meet the Dow Jones U.S. Dividend 100™ Index’s requirements, which has the effect of tilting the portfolio towards the value factor. SPY owns a more diverse portfolio including growth stocks. Historical performance of SCHD vs SPY has been similar, but will depend on how the value and growth factors perform moving forward.
The Long Answer
Historical Performance: SCHD vs SPY
Since the common inception date in 2011, performance has been relatively similar with an annualized difference of roughly .8%. This has compounded over time though and the cumulative performance differential is about 33%.
As the SCHD vs SPY chart of historical performance illustrates, SPY has outperformed over the past decade or so. However, SCHD has outperformed over several periods of time including the calendar year of 2022 when the growth factor really underperformed the value factor.
Differences Between SCHD and SPY
The primary difference between these two funds is that SCHD tracks the Dow Jones U.S. Dividend 100™ Index, while SPY tracks the broader S&P 500 index.
Geographic Exposure
Both SCHD and SPY hold essentially 100% US stocks, so I will not dig into country exposures or market classification here. For all intents and purposes, the two funds have identical country exposures.
Market Cap Exposure
Overall, the market cap exposures of SCHD and SPY are relatively similar.
| SCHD | SPY | |
| Large Cap | 78% | 82% |
| Mid Cap | 17% | 18% |
| Small Cap | 4% | 0% |
Sector Weights
There are some significant differences in sector weights, which makes sense based on the fact that SCHD is targeting high dividends and some sectors meet this criteria more easily.
| SCHD | SPY | |
| Basic Materials | 1.95% | 2.26% |
| Consumer Cyclical | 9.66% | 10.75% |
| Financial Services | 14.42% | 12.08% |
| Real Estate | 0.00% | 2.48% |
| Communication Services | 4.63% | 8.58% |
| Energy | 9.06% | 4.21% |
| Industrials | 17.48% | 8.26% |
| Technology | 13.34% | 28.55% |
| Consumer Defensive | 13.49% | 6.62% |
| Health Care | 15.69% | 13.58% |
| Utilities | 0.28% | 2.61% |
Expenses
SCHD’s expense ratio is .06%, while SPY’s expense ratio is .095%. Yes, SPY is 50%+ more expensive than SCHD, but we’re talking about 3.5 basis points! This in an non-issue in my opinion.
Transaction Costs
ETFs are free to trade at many brokers and custodians, so both SCHD and SPY should be free to trade in most cases. Additionally, these funds are among the largest ETFs and are very liquid. The bid-ask spread of both SCHD and SPY is very low, so individual investor trades will not generally be large enough to “move” the market.
Tax Efficiency & Capital Gain Distributions
ETFs are typically more tax-efficient than mutual funds, due to their ability to avoid realizing capital gains through like-kind redemptions (a process that is beyond the scope of this post). Neither SCHD nor SPY makes capital gains distribution (nor do I expect them to moving forward). Thus, these funds are about as tax-efficient as any fund can be and either fund is appropriate in taxable accounts, although the dividends do create a very slight tax drag.
Final Thoughts: SCHD vs SPY
Both funds are great ETFs that do what they are designed to do. I would not personally use dividend ETFs as the core of a portfolio, but that is a personal opinion and not necessarily the consensus. For a core position, I would personally choose SPY every time. However, investors looking for a satellite position in order to tilt their portfolio towards value could do a lot worse than using SCHD. At the end of the day, these two funds are not necessarily comparable because they play slightly different roles in a portfolio.
