Morningstar Magazine - June/July 2018 - 86

Strategies

The Whole Package
One-stop shopping for U.S. stock exposure has advantages.

BEST IDEAS: PASSIVE

Adam McCullough

Schwab U.S. Broad Market ETF SCHB

This article is adapted from the ETF's Morningstar Global Fund Report dated
April 2, 2018.

Stats 03/31/2018

Schwab U.S. Broad Market ETF SCHB is an excellent option for diversified
exposure to the U.S. equity market. This fund gains a persistent edge over its
peers by efficiently tracking a broadly diversified and representative
benchmark at a low cost. It earns a Morningstar Analyst Rating of Gold.

Adam McCullough, CFA, is a passive strategies analyst with Morningstar Research Services.

Expense Ratio
0.03%

Category Average Expense
0.97%

5-Yr Annlzd Return
13.00%

5-Yr % Rank in Cat
24

Process
∞ Positive

Performance
∞ Positive

Price
∞ Positive

Morningstar US Core TR

14
13.38
13.21
12
10

Schwab US Broad Market ETF
04/2015

04/2016

04/2017
Morningstar Ratings 03/31/2018

Morningstar Style Box 03/31/2018

Fund Centroid
Mstar
Mstar
weighted avg. of Period Return
Risk
equity holdings
3-Yr
Above Avg Average
Zone
75% of fund
equity holdings

Mstar
Rating
QQQQ

5-Yr

Above Avg Average

QQQQ

10-Yr

QQQQ

Overall Rating

Deep Core Core Core High
Value Value
Grwth Grwth

Top 5 Sectors 03/31/2018

Sectors

■ Fund

❙ Category Average

a Technology

20.17

3-Yr High 3-Yr Low

21.50

16.59 17.44

y Financial Services

13.26 14.02

d Healthcare

12.05 12.15

p Industrials

11.07 11.49

Morningstar June/July 2018

Parent
∞ Positive

$16K

t Consumer Cyclical

People
¶ Neutral

Growth of 10K 03/31/2018

Micro Small Mid Large Giant

From its inception in November 2009 through February 2018, the fund has
outpaced the category average return by 1.3% annually with similar risk. Much
of the fund's relative outperformance can be attributed to its persistent
low-cost advantage. The fund does carry meaningful risk. The index it tracks
fell by more than the average large-blend peer during the bear market
from October 2007 through March 2009. As a passive index fund, this portfolio
is always fully invested, so it won't miss a rally, but it exposes investors
to the full brunt of market downturns. K

Morningstar Category
Large Blend

Morningstar Pillars 03/31/2018

The fund tracks the market-cap-weighted Dow Jones U.S. Broad Stock Market
Index, which holds roughly the largest 2,500 U.S. stocks. The fund's
average market cap of just more than $60 billion is slightly larger than that
of the average fund in the large-blend Morningstar Category. The fund
is well diversified. It owns more than 2,250 stocks, and its top 10 holdings
represent about 17% of its portfolio.
Low turnover is a key advantage of the fund's market-cap-weighted approach
because changes in the prices of its holdings mirror changes to their weightings in the market. Compared with large-cap-stock index-tracking funds,
this fund benefits more from weighting by market cap because it owns stocks
of all sizes and doesn't have to sell or buy names as they cross arbitrary
market-cap size segments. Lower turnover means lower transaction costs and
a smaller likelihood of taxable capital-gains distributions. The fund's average
turnover over the past five years through 2017 measured 4% versus an average
of more than 55% for its category peers. Tax efficiency adds to the fund's
appeal. It has not distributed any capital gains since its inception in 2009.

Morningstar Analyst Rating
Œ

21.50

18.02

16.59

16.13

13.30

12.98

12.15

11.56

11.58

11.07

Table of Contents for the Digital Edition of Morningstar Magazine - June/July 2018