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SCHD vs. HYG: What’s The Difference?

The Schwab U.S. Dividend Equity ETF (SCHD) and the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) are both among the Top 100 ETFs. SCHD is a Schwab ETFs Large Value fund and HYG is a iShares High Yield Bond fund. So, what’s the difference between SCHD and HYG? And which fund is better?

The expense ratio of SCHD is 0.42 percentage points lower than HYG’s (0.06% vs. 0.48%). SCHD also has a high exposure to the financial services sector while HYG is mostly comprised of BB bonds. Overall, SCHD has provided higher returns than HYG over the past 8 years.

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

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Summary

SCHDHYG
NameSchwab U.S. Dividend Equity ETFiShares iBoxx $ High Yield Corporate Bond ETF
CategoryLarge ValueHigh Yield Bond
IssuerSchwab ETFsiShares
AUM26B20.03B
Avg. Return14.80%6.42%
Div. Yield2.89%4.44%
Expense Ratio0.06%0.48%

The Schwab U.S. Dividend Equity ETF (SCHD) is a Large Value fund that is issued by Schwab ETFs. It currently has 26B total assets under management and has yielded an average annual return of 14.80% over the past 10 years. The fund has a dividend yield of 2.89% with an expense ratio of 0.06%.

The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) is a High Yield Bond fund that is issued by iShares. It currently has 20.03B total assets under management and has yielded an average annual return of 6.42% over the past 10 years. The fund has a dividend yield of 4.44% with an expense ratio of 0.48%.

SCHD’s dividend yield is 1.55% lower than that of HYG (2.89% vs. 4.44%). Also, SCHD yielded on average 8.39% more per year over the past decade (14.80% vs. 6.42%). The expense ratio of SCHD is 0.42 percentage points lower than HYG’s (0.06% vs. 0.48%).

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Fund Composition

Holdings

SCHD - Holdings

SCHD HoldingsWeight
Merck & Co Inc4.24%
The Home Depot Inc4.19%
Texas Instruments Inc4.16%
Broadcom Inc4.15%
Amgen Inc4.11%
PepsiCo Inc4.09%
BlackRock Inc4.05%
Pfizer Inc3.97%
Verizon Communications Inc3.96%
Cisco Systems Inc3.96%

SCHD’s Top Holdings are Merck & Co Inc, The Home Depot Inc, Texas Instruments Inc, Broadcom Inc, and Amgen Inc at 4.24%, 4.19%, 4.16%, 4.15%, and 4.11%.

PepsiCo Inc (4.09%), BlackRock Inc (4.05%), and Pfizer Inc (3.97%) have a slightly smaller but still significant weight. Verizon Communications Inc and Cisco Systems Inc are also represented in the SCHD’s holdings at 3.96% and 3.96%.

HYG - Holdings

HYG Bond SectorsWeight
BB56.53%
B31.27%
Below B11.4%
BBB0.61%
AAA0.28%
A0.0%
AA0.0%
US Government0.0%
Others-0.09%

HYG’s Top Bond Sectors are ratings of BB, B, Below B, BBB, and AAA at 56.53%, 31.27%, 11.4%, 0.61%, and 0.28%. The fund is less weighted towards A (0.0%), AA (0.0%), and US Government (0.0%) rated bonds.

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Risk Analysis

SCHDHYG
Mean Return00.46
R-squared04.1
Std. Deviation06.96
Alpha03.58
Beta00.48
Sharpe Ratio00.7
Treynor Ratio010.01

The Schwab U.S. Dividend Equity ETF (SCHD) has a Alpha of 0 with a Beta of 0 and a Mean Return of 0. Its R-squared is 0 while SCHD’s Sharpe Ratio is 0. Furthermore, the fund has a Standard Deviation of 0 and a Treynor Ratio of 0.

The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) has a Treynor Ratio of 10.01 with a Standard Deviation of 6.96 and a Sharpe Ratio of 0.7. Its Alpha is 3.58 while HYG’s Beta is 0.48. Furthermore, the fund has a R-squared of 4.1 and a Mean Return of 0.46.

SCHD’s Mean Return is 0.46 points lower than that of HYG and its R-squared is 4.10 points lower. With a Standard Deviation of 0, SCHD is slightly less volatile than HYG. The Alpha and Beta of SCHD are 3.58 points lower and 0.48 points lower than HYG’s Alpha and Beta.

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Performance

Annual Returns

SCHD vs. HYG - Annual Returns

YearSCHDHYG
202015.11%4.12%
201927.28%14.23%
2018-5.46%-1.93%
201720.88%6.09%
201616.25%13.92%
2015-0.21%-5.55%
201411.66%2.0%
201332.9%5.9%
201211.4%13.83%
20110.0%5.89%
20100.0%12.07%

SCHD had its best year in 2013 with an annual return of 32.9%. SCHD’s worst year over the past decade yielded -5.46% and occurred in 2018. In most years the Schwab U.S. Dividend Equity ETF provided moderate returns such as in 2012, 2014, and 2020 where annual returns amounted to 11.4%, 11.66%, and 15.11% respectively.

The year 2019 was the strongest year for HYG, returning 14.23% on an annual basis. The poorest year for HYG in the last ten years was 2015, with a yield of -5.55%. Most years the iShares iBoxx $ High Yield Corporate Bond ETF has given investors modest returns, such as in 2011, 2013, and 2017, when gains were 5.89%, 5.9%, and 6.09% respectively.

Portfolio Growth

SCHD vs. HYG - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
SCHD$10,000$28,82314.80%
HYG$10,000$14,3826.42%

A $10,000 investment in SCHD would have resulted in a final balance of $28,823. This is a profit of $18,823 over 8 years and amounts to a compound annual growth rate (CAGR) of 14.80%.

With a $10,000 investment in HYG, the end total would have been $14,382. This equates to a $4,382 profit over 8 years and a compound annual growth rate (CAGR) of 6.42%.

SCHD’s CAGR is 8.39 percentage points higher than that of HYG and as a result, would have yielded $14,441 more on a $10,000 investment. Thus, SCHD outperformed HYG by 8.39% annually.


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