The Schwab US Dividend Equity ETF (NYSE:SCHD) has lost momentum despite strong inflows. After reaching a record high of $35.31 in August, it has fallen 4.6% to $33.68, and some technical indicators suggest it could slide further before rebounding.
Dividend ETF King Under Pressure Despite Inflows Surge
The SCHD ETF has had a good year, with its inflows surging and its performance being better than other top funds, including those tracking the Nasdaq 100 and S&P 500 indices.
It has also had substantial inflows this year. It has had over $6.12 billion in inflows in the last 30 days, bringing the year-to-date gains to $24 billion. This surge has brought its assets under management to $113 billion, making it the biggest dividend ETF in the world.
SCHD’s gains happened even though it has a limited presence in the fastest-growing industries this year. It has a small presence in the artificial intelligence (AI) and energy industries. Instead, its biggest constituents are in industries like healthcare and consumer staples.
The biggest companies in the fund are Merck & Co., Abbott Laboratories, Amgen, Coca-Cola, and Chevron. This portfolio lacks faster-growing companies like AMD, Nvidia, and SanDisk because it tracks the Dow Jones Dividend 100 Index, which looks at companies that have grown their dividends over time.
SCHD is also benefiting from its lower fees and its cheaper valuation. It has an expense ratio of just 0.06%, meaning that a $100,000 investment costs one $60 a year. Also, its price-to-earnings ratio of 18 is slightly lower than that of the S&P 500 Index.
Additionally, some investors are using SCHD to hedge their AI bets. The theory is that the ETF could hold up better if the AI bubble bursts, a risk that analysts such as Ray Dalio and Michael Burry have warned about.
SCHD ETF’s Technicals Suggest More Downside Possible
The ongoing SCHD ETF retreat is happening after it formed a rising wedge pattern, which is made up of two ascending and converging trendlines. A bearish breakout normally happens when the two lines are about to converge.
The Relative Strength Index (RSI) has dropped from 74.4 in August to the current 38. Also, the Percentage Price Oscillator (PPO) have just crossed the zero line. These technicals suggest that the ETF is not yet in the oversold level, suggesting that it may drop further before resuming the uptrend. If this happens, it may drop to $31.54.
Image: Shutterstock
Login to comment