This Dividend ETF Has Outperformed Many Actively Managed Funds Over a Decade

When looking for easy ways to add diversification to a portfolio, one of the smartest moves you can make is to dip into the world of exchange-traded funds, or ETFs -- those amazing funds that hold baskets of stocks and trade just like a normal equity.

ETFs come in all sizes and flavors. You can get an ETF that tracks an entire index, or you can get something more specific, like a thematic ETF that covers a niche. Some funds are specifically for income investors seeking to invest in stocks with a strong dividend yield.

Image source: Getty Images.

While index ETFs are passively managed, meaning that they aim to duplicate the performance of the underlying index, you can also find actively managed ETFs, with experts at the helm to choose which stocks will be in the fund and at what weighting in order to have market-beating returns.

Actively managed funds come with a cost -- they tend to have a higher expense ratio than passively managed ETFs. Common sense would dictate that the returns of these funds should more than make up for the added expense incurred by investors. But if you look hard enough, you can find some passively managed ETFs, such as the Schwab US Dividend Equity ETF (NYSEMKT: SCHD), that do extremely well and have outperformed many popular actively managed funds over the last decade.

What's in the SCHD ETF?

The Schwab US Dividend Equity ETF tracks the Dow Jones U.S. Dividend 100 Index, which comprises 100 U.S.-based companies with at least 10 consecutive years of dividend payments. That provides investors with exposure to a variety of sectors, with consumer staples having the greatest exposure.

And the stocks in this ETF represent some of the most recognizable companies in the world. The top 10 holdings represent 40% of the ETF's total weighting.

Source: Schwab Asset Management (weightings as of April 8, 2026).

The fund has an expense ratio of just 0.06%, or $6 annually for every $10,000 invested. And its dividend yield of 3.4% is much higher than the 1.1% yield of the S&P 500.

How does the SCHD ETF stack up to actively managed portfolios?

The dividend yield is the secret sauce of this ETF, helping to generate a 223% return over the last 10 years. Put another way, an investment of $10,000 a decade ago would be worth $32,300 now.

And that return is even sweeter when you compare it to the returns of some popular actively managed ETFs, such as the Pimco Active Bond Exchange-Traded Fund (NYSE: BOND), which returned just 32% in the last decade with an expense ratio of 0.54%, the iShares Short Duration Bond Active ETF (NYSEMKT: NEAR), with a total return of 34% and an expense ratio of 0.25%, and the State Street SPDR DoubleLine Total Return Tactical ETF (NYSEMKT: TOTL), which returned less than 20% and has an expense ratio of 0.55%

SCHD Total Return Level data by YCharts.

The SCHD ETF shows that active management doesn't always deliver better returns, making this passively managed dividend ETF a worthy pick for any portfolio.

Patrick Sanders has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Abbott Laboratories, Amgen, Chevron, Merck, and Texas Instruments. The Motley Fool recommends ConocoPhillips, UnitedHealth Group, and Verizon Communications. The Motley Fool has a disclosure policy.