QUAL vs. SCHG: What’s The Difference?

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

The expense ratio of QUAL is 0.11 percentage points higher than SCHG’s (0.15% vs. 0.04%). QUAL also has a lower exposure to the technology sector and a lower standard deviation. Overall, QUAL has provided lower returns than SCHG over the past 7 years.

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

Summary

QUAL SCHG
Name iShares MSCI USA Quality Factor ETF Schwab U.S. Large-Cap Growth ETF
Category Large Blend Large Growth
Issuer iShares Schwab ETFs
AUM 23.93B 15.16B
Avg. Return 13.42% 17.81%
Div. Yield 1.29% 0.43%
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. Large-Cap Growth ETF (SCHG) is a Large Growth fund that is issued by Schwab ETFs. It currently has 15.16B total assets under management and has yielded an average annual return of 17.81% over the past 10 years. The fund has a dividend yield of 0.43% with an expense ratio of 0.04%.

QUAL’s dividend yield is 0.86% higher than that of SCHG (1.29% vs. 0.43%). Also, QUAL yielded on average 4.39% less per year over the past decade (13.42% vs. 17.81%). The expense ratio of QUAL is 0.11 percentage points higher than SCHG’s (0.15% vs. 0.04%).

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Fund Composition

Industry Exposure

QUAL vs. SCHG - Industry Exposure

QUAL SCHG
Technology 22.52% 39.21%
Industrials 9.22% 3.01%
Energy 2.24% 0.2%
Communication Services 11.44% 17.07%
Utilities 2.41% 0.0%
Healthcare 13.22% 12.05%
Consumer Defensive 8.57% 2.15%
Real Estate 2.72% 1.64%
Financial Services 15.87% 7.98%
Consumer Cyclical 9.43% 15.01%
Basic Materials 2.35% 1.68%

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. Large-Cap Growth ETF (SCHG) has the most exposure to the Technology sector at 39.21%. This is followed by Communication Services and Consumer Cyclical at 17.07% and 15.01% respectively. Energy (0.2%), Real Estate (1.64%), and Basic Materials (1.68%) only make up 3.52% of the fund’s total assets.

SCHG’s mid-section with moderate exposure is comprised of Consumer Defensive, Industrials, Financial Services, Healthcare, and Consumer Cyclical stocks at 2.15%, 3.01%, 7.98%, 12.05%, and 15.01%.

QUAL is 16.69% less exposed to the Technology sector than SCHG (22.52% vs 39.21%). QUAL’s exposure to Financial Services and Healthcare stocks is 7.89% higher and 1.17% higher respectively (15.87% vs. 7.98% and 13.22% vs. 12.05%). In total, Basic Materials, Utilities, and Real Estate also make up 4.16% more of the fund’s holdings compared to SCHG (7.48% vs. 3.32%).

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%.

SCHG - Holdings

SCHG Holdings Weight
Apple Inc 11.49%
Microsoft Corp 10.91%
Amazon.com Inc 7.89%
Facebook Inc A 4.45%
Alphabet Inc A 3.93%
Alphabet Inc Class C 3.82%
Tesla Inc 2.8%
NVIDIA Corp 2.67%
Visa Inc Class A 2.12%
UnitedHealth Group Inc 2.02%

SCHG’s Top Holdings are Apple Inc, Microsoft Corp, Amazon.com Inc, Facebook Inc A, and Alphabet Inc A at 11.49%, 10.91%, 7.89%, 4.45%, and 3.93%.

Alphabet Inc Class C (3.82%), Tesla Inc (2.8%), and NVIDIA Corp (2.67%) have a slightly smaller but still significant weight. Visa Inc Class A and UnitedHealth Group Inc are also represented in the SCHG’s holdings at 2.12% and 2.02%.

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Risk Analysis

QUAL SCHG
Mean Return 0 1.46
R-squared 0 92.92
Std. Deviation 0 14.78
Alpha 0 1.97
Beta 0 1.05
Sharpe Ratio 0 1.14
Treynor Ratio 0 16.3

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

The Schwab U.S. Large-Cap Growth ETF (SCHG) has a Standard Deviation of 14.78 with a Mean Return of 1.46 and a Treynor Ratio of 16.3. Its R-squared is 92.92 while SCHG’s Alpha is 1.97. Furthermore, the fund has a Sharpe Ratio of 1.14 and a Beta of 1.05.

QUAL’s Mean Return is 1.46 points lower than that of SCHG and its R-squared is 92.92 points lower. With a Standard Deviation of 0, QUAL is slightly less volatile than SCHG. The Alpha and Beta of QUAL are 1.97 points lower and 1.05 points lower than SCHG’s Alpha and Beta.

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Performance

Annual Returns

QUAL vs. SCHG - Annual Returns

Year QUAL SCHG
2020 16.96% 39.13%
2019 34.14% 36.21%
2018 -5.77% -1.35%
2017 22.26% 28.04%
2016 9.18% 6.76%
2015 5.56% 3.26%
2014 11.62% 15.74%
2013 0.0% 33.96%
2012 0.0% 17.02%
2011 0.0% -0.67%
2010 0.0% 16.83%

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 2020 was the strongest year for SCHG, returning 39.13% on an annual basis. The poorest year for SCHG in the last ten years was 2018, with a yield of -1.35%. Most years the Schwab U.S. Large-Cap Growth ETF has given investors modest returns, such as in 2014, 2010, and 2012, when gains were 15.74%, 16.83%, and 17.02% respectively.

Portfolio Growth

QUAL vs. SCHG - Portfolio Growth

Fund Initial Balance Final Balance CAGR
QUAL $10,000 $23,251 13.42%
SCHG $10,000 $30,541 17.81%

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 SCHG, the end total would have been $30,541. This equates to a $20,541 profit over 7 years and a compound annual growth rate (CAGR) of 17.81%.

QUAL’s CAGR is 4.39 percentage points lower than that of SCHG and as a result, would have yielded $7,290 less on a $10,000 investment. Thus, QUAL performed worse than SCHG by 4.39% annually.


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