Schwab Small-Cap ETF Outperforms Vanguard on One-Year Returns by Letting Sandisk Shine
Key Points
Schwab U.S. Small-Cap ETF and Vanguard Morningstar Small-Cap ETF both offer a highly competitive expense ratio of 0.03%.
Schwab U.S. Small-Cap ETF has outperformed on a one-year total return basis but experienced a deeper maximum drawdown over the last five years.
Vanguard Morningstar Small-Cap ETF manages significantly more assets under management (AUM) and provides a higher trailing dividend yield.
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The Schwab U.S. Small-Cap ETF (NYSEMKT:SCHA) and the Vanguard Morningstar Small-Cap ETF (NYSEMKT:VB) both offer low-cost access to small-cap stocks, differing primarily in index selection and sector concentrations.
Investors looking for small-cap exposure often consider these two established funds for their long-term growth potential. While both provide low-cost entries into the space, they follow different benchmarks that result in unique risk profiles, holding counts, and sector weights. This comparison explores how these differences in portfolio construction can impact overall market exposure and dividend income potential.
Snapshot (cost & size)
| Metric | SCHA | VB |
|---|---|---|
| Issuer | Schwab | Vanguard |
| Share price (as of 8/27/26) | $34.77 | $304.28 |
| Expense ratio | 0.03% | 0.03% |
| 1-yr return (as of 8/27/26) | 28.5% | 21.9% |
| Dividend yield | 1.0% | 1.2% |
| Beta | 1.10 | 1.04 |
| AUM | $23 billion | $183.4 billion |
Beta measures price volatility relative to the S&P 500; beta is calculated from monthly returns over the available fund history (up to five years). The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.
Both funds are exceptionally affordable with identical 0.03% expense ratios. The Vanguard fund currently offers a slightly higher distribution yield of 1.2%, providing more income potential than the Schwab fund's 1% yield.
Performance & risk comparison
| Metric | SCHA | VB |
|---|---|---|
| Max drawdown (5 yr) | (30.8%) | (28.2%) |
| Growth of $1,000 over 5 years (total return) | $1,432 | $1,442 |
What's inside
The Vanguard Morningstar Small-Cap ETF aims to track the investment returns of small-capitalization companies via the CRSP US Small Cap Index. It maintains a broad portfolio of about 1,300 holdings. Its sector allocation features industrials at 21%, technology at 14%, and consumer discretionary at 13%. Its largest positions include Revolution Medicines Inc at 0.47%, Natera Inc at 0.45%, and EMCOR Group Inc at 0.44%. The fund was launched in 2004. Vanguard Morningstar Small-Cap ETF has paid $3.61 per share over the trailing 12 months, which on its recent ~$304.28 share price works out to a 1.2% yield.
The Schwab U.S. Small-Cap ETF provides exposure to the Dow Jones U.S. Small-Cap Total Stock Market Index. This fund holds about 1,700 positions, offering a wider reach across the small-cap market. Its portfolio is more concentrated in technology at 23%, industrials at 17%, and financial services at 15%. Significant holdings include Sandisk at 4.6%, Lumentum Holdings at 1.4%, and Revolution Medicines at 0.87%. It was launched in 2009. Schwab U.S. Small-Cap ETF has paid $0.36 per share over the trailing 12 months, which on its recent ~$34.77 share price works out to a 1% yield.
For more guidance on ETF investing, check out the full guide at this link.
Which looks like the better buy
Adding small-cap stocks to an existing portfolio is often viewed as a solid way to diversify your holdings and capture growth. These companies have market capitalizations ranging from $250 million to $200 billion. There is some risk in investing in these companies, as they are often in earlier phases of their growth. However, that also means you could be getting in on the ground floor of the next market leader.
Investing in small-cap index funds, which hold, in this case, more than 1,000 small-cap stocks, helps smooth out that risk. SCHA and VB have a lot of similarities: They both have low expense ratios, similar betas, and nearly identical performances over the last five years. The biggest difference between the two funds may be the indexes they track.
SCHA tracks the Dow Jones U.S. Small-Cap Total Stock Market Index while VB tracks the CRSP US Small Cap Index. These indexes have slightly different management methods that affect how their holdings are weighted. SCHA's method brings Sandisk to the top of the pile, which is arguably the reason for its superior one-year return over VB. In general, its top holdings also make up a larger percentage of the total portfolio than VB's. If this method of concentration appeals to you, it may be worth a deeper dive. Note, too, that it holds more total stocks, though its total assets under management is smaller than VB's.
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Sarah Sidlow has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends EMCOR Group, Lumentum, and Natera. The Motley Fool has a disclosure policy.
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