QUAL vs. SCHB: What’s The Difference?

The iShares MSCI USA Quality Factor ETF (QUAL) and the Schwab U.S. Broad Market ETF (SCHB) are both among the Top 100 ETFs. QUAL is a iShares Large Blend fund and SCHB is a Schwab ETFs Large Blend fund. So, what’s the difference between QUAL and SCHB? And which fund is better?

The expense ratio of QUAL is 0.12 percentage points higher than SCHB’s (0.15% vs. 0.03%). QUAL also has a lower exposure to the technology sector and a lower standard deviation. Overall, QUAL has provided lower returns than SCHB over the past 7 years.

In this article, we’ll compare QUAL vs. SCHB. We’ll look at industry exposure and performance, as well as at their fund composition and portfolio growth. Moreover, I’ll also discuss QUAL’s and SCHB’s risk metrics, holdings, and annual returns and examine how these affect their overall returns.

Summary

QUAL SCHB
Name iShares MSCI USA Quality Factor ETF Schwab U.S. Broad Market ETF
Category Large Blend Large Blend
Issuer iShares Schwab ETFs
AUM 23.93B 21.44B
Avg. Return 13.42% 14.43%
Div. Yield 1.29% 1.39%
Expense Ratio 0.15% 0.03%

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. Broad Market ETF (SCHB) is a Large Blend fund that is issued by Schwab ETFs. It currently has 21.44B total assets under management and has yielded an average annual return of 14.43% over the past 10 years. The fund has a dividend yield of 1.39% with an expense ratio of 0.03%.

QUAL’s dividend yield is 0.10% lower than that of SCHB (1.29% vs. 1.39%). Also, QUAL yielded on average 1.01% less per year over the past decade (13.42% vs. 14.43%). The expense ratio of QUAL is 0.12 percentage points higher than SCHB’s (0.15% vs. 0.03%).

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Fund Composition

Industry Exposure

QUAL vs. SCHB - Industry Exposure

QUAL SCHB
Technology 22.52% 24.15%
Industrials 9.22% 9.29%
Energy 2.24% 2.78%
Communication Services 11.44% 10.52%
Utilities 2.41% 2.32%
Healthcare 13.22% 13.37%
Consumer Defensive 8.57% 5.76%
Real Estate 2.72% 3.58%
Financial Services 15.87% 13.88%
Consumer Cyclical 9.43% 11.9%
Basic Materials 2.35% 2.45%

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. Broad Market ETF (SCHB) has the most exposure to the Technology sector at 24.15%. This is followed by Financial Services and Healthcare at 13.88% and 13.37% respectively. Basic Materials (2.45%), Energy (2.78%), and Real Estate (3.58%) only make up 8.81% of the fund’s total assets.

SCHB’s mid-section with moderate exposure is comprised of Consumer Defensive, Industrials, Communication Services, Consumer Cyclical, and Healthcare stocks at 5.76%, 9.29%, 10.52%, 11.9%, and 13.37%.

QUAL is 1.63% less exposed to the Technology sector than SCHB (22.52% vs 24.15%). QUAL’s exposure to Financial Services and Healthcare stocks is 1.99% higher and 0.15% lower respectively (15.87% vs. 13.88% and 13.22% vs. 13.37%). In total, Basic Materials, Utilities, and Real Estate also make up 0.87% less of the fund’s holdings compared to SCHB (7.48% vs. 8.35%).

Holdings

QUAL - 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%.

SCHB - Holdings

SCHB Holdings Weight
Apple Inc 4.86%
Microsoft Corp 4.61%
Amazon.com Inc 3.33%
Facebook Inc A 1.88%
Alphabet Inc A 1.66%
Alphabet Inc Class C 1.61%
Berkshire Hathaway Inc Class B 1.19%
Tesla Inc 1.18%
NVIDIA Corp 1.13%
JPMorgan Chase & Co 1.06%

SCHB’s Top Holdings are Apple Inc, Microsoft Corp, Amazon.com Inc, Facebook Inc A, and Alphabet Inc A at 4.86%, 4.61%, 3.33%, 1.88%, and 1.66%.

Alphabet Inc Class C (1.61%), Berkshire Hathaway Inc Class B (1.19%), and Tesla Inc (1.18%) have a slightly smaller but still significant weight. NVIDIA Corp and JPMorgan Chase & Co are also represented in the SCHB’s holdings at 1.13% and 1.06%.

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Risk Analysis

QUAL SCHB
Mean Return 0 1.23
R-squared 0 99.33
Std. Deviation 0 14.12
Alpha 0 -0.58
Beta 0 1.04
Sharpe Ratio 0 1
Treynor Ratio 0 13.58

The iShares MSCI USA Quality Factor ETF (QUAL) has a Mean Return of 0 with a Treynor Ratio of 0 and a Standard Deviation of 0. Its Beta is 0 while QUAL’s R-squared is 0. Furthermore, the fund has a Sharpe Ratio of 0 and a Alpha of 0.

The Schwab U.S. Broad Market ETF (SCHB) has a R-squared of 99.33 with a Mean Return of 1.23 and a Alpha of -0.58. Its Beta is 1.04 while SCHB’s Treynor Ratio is 13.58. Furthermore, the fund has a Standard Deviation of 14.12 and a Sharpe Ratio of 1.

QUAL’s Mean Return is 1.23 points lower than that of SCHB and its R-squared is 99.33 points lower. With a Standard Deviation of 0, QUAL is slightly less volatile than SCHB. The Alpha and Beta of QUAL are 0.58 points higher and 1.04 points lower than SCHB’s Alpha and Beta.

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Performance

Annual Returns

QUAL vs. SCHB - Annual Returns

Year QUAL SCHB
2020 16.96% 20.77%
2019 34.14% 30.94%
2018 -5.77% -5.25%
2017 22.26% 21.18%
2016 9.18% 12.56%
2015 5.56% 0.45%
2014 11.62% 12.67%
2013 0.0% 33.37%
2012 0.0% 16.22%
2011 0.0% 1.4%
2010 0.0% 17.1%

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 SCHB, returning 33.37% on an annual basis. The poorest year for SCHB in the last ten years was 2018, with a yield of -5.25%. Most years the Schwab U.S. Broad Market ETF has given investors modest returns, such as in 2014, 2012, and 2010, when gains were 12.67%, 16.22%, and 17.1% respectively.

Portfolio Growth

QUAL vs. SCHB - Portfolio Growth

Fund Initial Balance Final Balance CAGR
QUAL $10,000 $23,251 13.42%
SCHB $10,000 $23,130 14.43%

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 SCHB, the end total would have been $23,130. This equates to a $13,130 profit over 7 years and a compound annual growth rate (CAGR) of 14.43%.

QUAL’s CAGR is 1.01 percentage points lower than that of SCHB and as a result, would have yielded $121 more on a $10,000 investment. Thus, QUAL performed worse than SCHB by 1.01% annually.


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