Charles Schwab ETF (SCHG) Flaunts Top-Tier Growth Stock Package

Business Insider

4 days ago

If you're looking for a long-term core holding to anchor your portfolio, the Schwab U.S. Large-Cap Growth ETF (SCHG) is a compelling choice—and so is its sponsor, Charles Schwab Corporation (SCHW). SCHG, managed by Schwab Asset Management, oversees approximately $46 billion in non-discretionary assets (in addition to $1.3 trillion in discretionary assets) and offers diversified exposure to leading growth stocks tied to some of the market's most durable long-term themes.
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Its strong performance track record and ultra-low expense ratio make it particularly attractive for cost-conscious investors aiming to maximize long-term returns. At the same time, Charles Schwab Corporation, the parent company behind the fund, presents its own investment appeal as a major player in brokerage, banking, and asset management.
Comparing SCHG with Vanguard
Any serious discussion about what makes SCHG a compelling investment must start with its standout performance history. It's a well-known investing truth that few funds—whether ETFs, mutual funds, or even hedge funds—consistently outperform the market over time. SCHG is one of the rare exceptions, and it has been doing so for years.
As of the most recent monthly close, SCHG delivered an impressive annualized return of 26.9% over the past three years. In comparison, the Vanguard S&P 500 ETF (VOO), which tracks the broader market via the S&P 500 (SPX), returned 19.6% annualized over the same period —strong in its own right, but trailing SCHG by a full seven percentage points annually.
Looking further back, SCHG has continued to outperform. Over the past five years, it posted an 18.7% annualized return, outpacing VOO's 16.6%. And over the past decade, SCHG returned 16.7% annually, compared to VOO's 13.6%.
Investing in a fund that delivers consistent double-digit annualized returns is a powerful way to grow portfolio value over time. To illustrate, a $10,000 investment in SCHG 10 years ago would be worth $45,645 today.
While it's true that past performance doesn't guarantee future results, SCHG's long-term track record of outperformance positions it as a fund investors can reasonably count on to continue delivering strong results over time.
SCHG's Miniscule Expense Ratio
Not only has SCHG helped investors build wealth over time, but it also helps them preserve it with a negligible expense ratio of just 0.04%. This means that an investor putting $10,000 into the fund will pay just $4 in fees annually. Assuming that SCHG maintains this expense ratio and returns 5% per year going forward, the investor putting $10,000 into SCHG will pay just $34 in fees over the next 10 years.
It's worth noting that this makes SCHG significantly cheaper than one of the other most popular tech- and growth-oriented ETFs, the Invesco QQQ Trust (QQQ), which charges a comparatively higher expense ratio of 0.20%.
Exposure to Top Growth Stocks
Importantly, SCHG's portfolio is where the rubber hits the road for investors. As a passively managed index fund, it offers solid diversification across 228 holdings, tracking the Dow Jones U.S. Large-Cap Growth Total Stock Market Index. That said, the fund is somewhat top-heavy—its top 10 holdings make up 58.5% of total assets. Nvidia (NVDA) leads the pack with a 12.3% weighting, followed closely by Microsoft (MSFT) at 11.0%, both reflecting their dominant roles in the current growth landscape.
Below is a snapshot of SCHG's top 10 holdings, as sourced from TipRanks' holdings tool.
As you can see, SCHG's top 10 holdings are a veritable who's who list of the top tech and growth stocks that have come to define the Tech market in recent years. In addition to the Magnificent Seven stocks, SCHG's top 10 holdings also include semiconductor giant Broadcom (AVGO), a key player in the AI revolution, and pharma megacap Eli Lilly (LLY), whose weight loss drugs have taken the healthcare sector by storm. Just outside of SCHG's top 10 holdings, other prominent positions include Visa (V), Mastercard (MA), Palantir (PLTR), Netflix (NFLX), and GE Aerospace (GE).
What I find especially appealing about SCHG's portfolio is its dual advantage. On one hand, it offers immediate exposure to a roster of established market leaders with strong track records of outperformance. On the other hand, it positions investors to benefit from transformative, long-term growth themes. These include generative AI through companies like Nvidia, Microsoft, Broadcom, Meta Platforms (META), and Alphabet (GOOGL); autonomous vehicles via Tesla and Alphabet; robotics through Amazon (AMZN) and Tesla; and breakthroughs in biotech and weight-loss drugs through names like Eli Lilly (LLY). These are precisely the innovation-driven sectors that long-term investors should be targeting.
One notable risk is SCHG's relatively high valuation—its holdings currently trade at a trailing 12-month price-to-earnings ratio of 36.8, well above the S&P 500's average of around 25. This is something investors should keep in mind. However, these are high-growth companies with strong earnings potential, which could make today's valuations appear more reasonable over time. For valuation-conscious investors like myself, strategies such as dollar-cost averaging or buying during market pullbacks can help mitigate this risk and build positions more prudently.
SCHG is a Dividend Payer
While it's not the fund's main calling card, SCHG is a dividend payer, albeit with a low dividend yield of just 0.38%. Still, the ETF has increased the size of its payout each of the past three years in a row, and I would expect it to continue to do so going forward as the stocks it holds increase their earnings over the years.
Is SCHG a Good ETF to Buy?
Turning to Wall Street, SCHG earns a Strong Buy consensus rating based on 201 Buys, 26 Holds, and one Sell rating assigned in the past three months. The average SCHG price target of $32.67 implies ~7.6% upside potential over the coming twelve months.
Investor Takeaway
While there's no shortage of ETFs on the market, few have consistently outperformed the broader indices over time, the way SCHG has. I'm bullish on SCHG due to its strong track record of long-term outperformance, ultra-low expense ratio, and high-quality portfolio of blue-chip growth stocks. These attributes make it a compelling choice for investors seeking a reliable, long-term core holding to anchor their portfolios for the long term.