Which Is the Better Broad-Market ETF, Schwab's SCHB or State Street's SPTM?

The choice between the State Street SPDR Portfolio S&P 1500 Composite Stock Market ETF (NYSEMKT:SPTM) and Schwab U.S. Broad Market ETF (NYSEMKT:SCHB) depends on whether an investor seeks exposure to 1,512 established firms or a broader basket of 2,410 companies.

Both funds serve as core building blocks for U.S. equity exposure. While SPTM tracks the S&P Composite 1500, SCHB follows the Dow Jones U.S. Broad Stock Market Index. They aim to capture the vast majority of the investable domestic market at the lowest possible cost for long-term investors.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

These ETFs are among the most affordable in the category, each charging an expense ratio of 0.03%. Both funds delivered identical one-year returns of 24.9% through June 8.

Performance & risk comparison

What's inside

The Schwab U.S. Broad Market ETF provides exposure to 2,410 stocks, reaching deeper into the small-cap segment than its counterpart. Its sector allocation is led by technology at 37%, financial services at 11%, and communication services at 10%. Its largest positions include Nvidia (NASDAQ:NVDA) at 6.99%, Apple (NASDAQ:AAPL) at 6.33%, and Microsoft (NASDAQ:MSFT) at 4.34%. This fund, launched in 2009, has a trailing-12-month dividend of $0.30 per share.

In contrast, the State Street SPDR Portfolio S&P 1500 Composite Stock Market ETF uses a more selective index of 1,512 companies, which results in slightly higher concentration in its largest positions. Its top holdings include Nvidia at 7.37%, Apple at 6.43%, and Microsoft at 4.44%. The portfolio tilts toward technology at 37%, financial services at 11%, and consumer cyclical at 10%. This fund was launched in 2000 and has paid $0.95 per share over the trailing 12 months.

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What this means for investors

The Schwab U.S. Broad Market ETF (SCHB) and State Street SPDR Portfolio S&P 1500 Composite Stock Market ETF (SPTM) are both compelling funds for investors who want exposure to the overall U.S. stock market. Choosing which to invest in is not straightforward given how they are so similar to each other.

Both offer nearly identical one-year performance, betas, and expense ratios, although the State Street fund offers a slightly higher distribution payout with a dividend yield of 1.04%, compared to 1.01% for the Schwab ETF. But the factors that set the pair apart can be the key components that sway a buy towards one versus the other.

State Street’s SPTM had a lower max drawdown over the past five years, contributing to larger growth over SCHB. It tracks the S&P Composite 1500, so for investors interested in these stocks, SPTM is the clear choice. Its fewer number of holdings represents about 90% of the investable U.S. equity market.

SCHB has a much larger AUM, giving it superior liquidity. This can be a reason to choose Schwab’s fund, since it results in tighter bid-ask spreads. Because it tracks the Dow Jones U.S. Broad Stock Market Index, SCHB includes far more holdings, which provides greater exposure to smaller companies than SPTM.

Robert Izquierdo has positions in Apple, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Apple, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.