The iShares MSCI USA Quality Factor ETF (QUAL) and the Schwab U.S. Small-Cap ETF (SCHA) are both among the Top 100 ETFs. QUAL is a iShares Large Blend fund and SCHA is a Schwab ETFs Small Blend fund. So, what’s the difference between QUAL and SCHA? And which fund is better?
The expense ratio of QUAL is 0.11 percentage points higher than SCHA’s (0.15% vs. 0.04%). QUAL also has a higher exposure to the technology sector and a lower standard deviation. Overall, QUAL has provided higher returns than SCHA over the past 7 years.
In this article, we’ll compare QUAL vs. SCHA. We’ll look at risk metrics and fund composition, as well as at their holdings and industry exposure. Moreover, I’ll also discuss QUAL’s and SCHA’s portfolio growth, performance, and annual returns and examine how these affect their overall returns.
Summary
| QUAL | SCHA | |
| Name | iShares MSCI USA Quality Factor ETF | Schwab U.S. Small-Cap ETF |
| Category | Large Blend | Small Blend |
| Issuer | iShares | Schwab ETFs |
| AUM | 23.93B | 16.51B |
| Avg. Return | 13.42% | 12.62% |
| Div. Yield | 1.29% | 0.98% |
| Expense Ratio | 0.15% | 0.04% |
The iShares MSCI USA Quality Factor ETF (QUAL) is a Large Blend fund that is issued by iShares. It currently has 23.93B total assets under management and has yielded an average annual return of 13.42% over the past 10 years. The fund has a dividend yield of 1.29% with an expense ratio of 0.15%.
The Schwab U.S. Small-Cap ETF (SCHA) is a Small Blend fund that is issued by Schwab ETFs. It currently has 16.51B total assets under management and has yielded an average annual return of 12.62% over the past 10 years. The fund has a dividend yield of 0.98% with an expense ratio of 0.04%.
QUAL’s dividend yield is 0.31% higher than that of SCHA (1.29% vs. 0.98%). Also, QUAL yielded on average 0.80% more per year over the past decade (13.42% vs. 12.62%). The expense ratio of QUAL is 0.11 percentage points higher than SCHA’s (0.15% vs. 0.04%).
Fund Composition
Industry Exposure
| QUAL | SCHA | |
| Technology | 22.52% | 14.91% |
| Industrials | 9.22% | 15.37% |
| Energy | 2.24% | 3.35% |
| Communication Services | 11.44% | 3.5% |
| Utilities | 2.41% | 1.83% |
| Healthcare | 13.22% | 16.5% |
| Consumer Defensive | 8.57% | 3.75% |
| Real Estate | 2.72% | 7.83% |
| Financial Services | 15.87% | 14.49% |
| Consumer Cyclical | 9.43% | 14.48% |
| Basic Materials | 2.35% | 3.98% |
The iShares MSCI USA Quality Factor ETF (QUAL) has the most exposure to the Technology sector at 22.52%. This is followed by Financial Services and Healthcare at 15.87% and 13.22% respectively. Basic Materials (2.35%), Utilities (2.41%), and Real Estate (2.72%) only make up 7.48% of the fund’s total assets.
QUAL’s mid-section with moderate exposure is comprised of Consumer Defensive, Industrials, Consumer Cyclical, Communication Services, and Healthcare stocks at 8.57%, 9.22%, 9.43%, 11.44%, and 13.22%.
The Schwab U.S. Small-Cap ETF (SCHA) has the most exposure to the Healthcare sector at 16.5%. This is followed by Industrials and Technology at 15.37% and 14.91% respectively. Energy (3.35%), Communication Services (3.5%), and Consumer Defensive (3.75%) only make up 10.60% of the fund’s total assets.
SCHA’s mid-section with moderate exposure is comprised of Basic Materials, Real Estate, Consumer Cyclical, Financial Services, and Technology stocks at 3.98%, 7.83%, 14.48%, 14.49%, and 14.91%.
QUAL is 7.61% more exposed to the Technology sector than SCHA (22.52% vs 14.91%). QUAL’s exposure to Financial Services and Healthcare stocks is 1.38% higher and 3.28% lower respectively (15.87% vs. 14.49% and 13.22% vs. 16.5%). In total, Basic Materials, Utilities, and Real Estate also make up 6.16% less of the fund’s holdings compared to SCHA (7.48% vs. 13.64%).
Holdings
| QUAL Holdings | Weight |
| Facebook Inc Class A | 4.77% |
| Nike Inc Class B | 4.05% |
| Microsoft Corp | 3.54% |
| Apple Inc | 3.52% |
| Johnson & Johnson | 2.99% |
| BlackRock Inc | 2.87% |
| Target Corp | 2.8% |
| Mastercard Inc Class A | 2.72% |
| NVIDIA Corp | 2.71% |
| Alphabet Inc Class A | 2.49% |
QUAL’s Top Holdings are Facebook Inc Class A, Nike Inc Class B, Microsoft Corp, Apple Inc, and Johnson & Johnson at 4.77%, 4.05%, 3.54%, 3.52%, and 2.99%.
BlackRock Inc (2.87%), Target Corp (2.8%), and Mastercard Inc Class A (2.72%) have a slightly smaller but still significant weight. NVIDIA Corp and Alphabet Inc Class A are also represented in the QUAL’s holdings at 2.71% and 2.49%.
| SCHA Holdings | Weight |
| AMC Entertainment Holdings Inc Class A | 0.67% |
| Caesars Entertainment Inc | 0.51% |
| Cloudflare Inc | 0.48% |
| NovoCure Ltd | 0.45% |
| Plug Power Inc | 0.41% |
| 10x Genomics Inc Ordinary Shares – Class A | 0.34% |
| GameStop Corp Class A | 0.28% |
| RH | 0.27% |
| Penn National Gaming Inc | 0.27% |
| Axon Enterprise Inc | 0.27% |
SCHA’s Top Holdings are AMC Entertainment Holdings Inc Class A, Caesars Entertainment Inc, Cloudflare Inc, NovoCure Ltd, and Plug Power Inc at 0.67%, 0.51%, 0.48%, 0.45%, and 0.41%.
10x Genomics Inc Ordinary Shares – Class A (0.34%), GameStop Corp Class A (0.28%), and RH (0.27%) have a slightly smaller but still significant weight. Penn National Gaming Inc and Axon Enterprise Inc are also represented in the SCHA’s holdings at 0.27% and 0.27%.
Risk Analysis
| QUAL | SCHA | |
| Mean Return | 0 | 1.14 |
| R-squared | 0 | 82.26 |
| Std. Deviation | 0 | 18.68 |
| Alpha | 0 | -4.65 |
| Beta | 0 | 1.25 |
| Sharpe Ratio | 0 | 0.7 |
| Treynor Ratio | 0 | 9.62 |
The iShares MSCI USA Quality Factor ETF (QUAL) has a Mean Return of 0 with a Alpha of 0 and a Standard Deviation of 0. Its Treynor Ratio is 0 while QUAL’s Sharpe Ratio is 0. Furthermore, the fund has a R-squared of 0 and a Beta of 0.
The Schwab U.S. Small-Cap ETF (SCHA) has a Sharpe Ratio of 0.7 with a R-squared of 82.26 and a Alpha of -4.65. Its Standard Deviation is 18.68 while SCHA’s Beta is 1.25. Furthermore, the fund has a Treynor Ratio of 9.62 and a Mean Return of 1.14.
QUAL’s Mean Return is 1.14 points lower than that of SCHA and its R-squared is 82.26 points lower. With a Standard Deviation of 0, QUAL is slightly less volatile than SCHA. The Alpha and Beta of QUAL are 4.65 points higher and 1.25 points lower than SCHA’s Alpha and Beta.
Performance
Annual Returns
| Year | QUAL | SCHA |
| 2020 | 16.96% | 19.35% |
| 2019 | 34.14% | 26.54% |
| 2018 | -5.77% | -11.75% |
| 2017 | 22.26% | 15.04% |
| 2016 | 9.18% | 19.88% |
| 2015 | 5.56% | -4.24% |
| 2014 | 11.62% | 6.53% |
| 2013 | 0.0% | 39.59% |
| 2012 | 0.0% | 18.24% |
| 2011 | 0.0% | -2.95% |
| 2010 | 0.0% | 28.31% |
QUAL had its best year in 2019 with an annual return of 34.14%. QUAL’s worst year over the past decade yielded -5.77% and occurred in 2018. In most years the iShares MSCI USA Quality Factor ETF provided moderate returns such as in 2010, 2015, and 2016 where annual returns amounted to 0.0%, 5.56%, and 9.18% respectively.
The year 2013 was the strongest year for SCHA, returning 39.59% on an annual basis. The poorest year for SCHA in the last ten years was 2018, with a yield of -11.75%. Most years the Schwab U.S. Small-Cap ETF has given investors modest returns, such as in 2017, 2012, and 2020, when gains were 15.04%, 18.24%, and 19.35% respectively.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| QUAL | $10,000 | $23,251 | 13.42% |
| SCHA | $10,000 | $18,750 | 12.62% |
A $10,000 investment in QUAL would have resulted in a final balance of $23,251. This is a profit of $13,251 over 7 years and amounts to a compound annual growth rate (CAGR) of 13.42%.
With a $10,000 investment in SCHA, the end total would have been $18,750. This equates to a $8,750 profit over 7 years and a compound annual growth rate (CAGR) of 12.62%.
QUAL’s CAGR is 0.80 percentage points higher than that of SCHA and as a result, would have yielded $4,501 more on a $10,000 investment. Thus, QUAL outperformed SCHA by 0.80% annually.
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