Schwab vs. iShares: Is SCHA or IJR the Better U.S. Small-Cap ETF?

Schwab U.S. Small-Cap ETF (NYSEMKT:SCHA) charges a marginally lower expense ratio and offers broader diversification than iShares Core S&P Small-Cap ETF (NYSEMKT:IJR), while IJR features a slightly higher yield and less severe drawdowns in recent years.

Both the Schwab U.S. Small-Cap ETF (SCHA) and iShares Core S&P Small-Cap ETF (IJR) target U.S. small-cap equities, but they build their portfolios differently. SCHA tracks the Dow Jones U.S. Small-Cap Total Stock Market Index, resulting in more holdings, while IJR follows the S&P SmallCap 600. This comparison breaks down their costs, recent performance, portfolio makeup, and trading characteristics to help investors decide which approach best fits their needs.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year weekly returns. The one-year return represents total return over the trailing 12 months.

SCHA looks more affordable with a 0.04% expense ratio compared to IJR’s 0.06%, and IJR edges out SCHA with a slightly higher dividend yield over the past year.

Performance & risk comparison

What's inside

SCHA tracks a broad small-cap index, holding 1,742 stocks with sector weights spread across financial services (18%), industrials (17%), and technology (15%). Its largest positions -- such as Sandisk, Lumentum, and Rocket Companies -- make up a small fraction of assets, supporting diversification. The fund has a 16-year track record and saw its price range from $20.04 to $30.20 over the past year.

IJR holds a more concentrated basket of 632 companies, with the largest weights in financial services (18%), industrials (17%), and technology (14%). Its top holdings include Arrowhead Pharmaceuticals, LKQ, and Armstrong World Industries, each representing only a modest share. Both funds avoid leverage, currency hedging, and other complex features.

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What this means for investors

Both of these small-cap ETFs are excellent options for investors seeking exposure to that corner of the market. Over the last one, five, and ten years, they have produced very similar total returns. While they have lagged behind the broader S&P 500, this is more a result of the latter's booming Magnificent Seven holdings, which have catapulted the index into a new stratosphere. That said, now may be the time to consider SCHA or IJR. Both ETFs trade at a discount, at just 18 times earnings, whereas the S&P 500 remains at a lofty 28 times earnings.

As for which is the better option between the two small-cap ETFs, I would lean ever so slightly towards IJR. While it has a smaller basket of stocks, its dividend yield is somewhat higher, and it has experienced less volatility than SCHA. I think this more than offsets the minute difference in their expense ratios -- which are very low and reasonable for both funds. Furthermore, IJR has grown its dividend by 8% annually over the last decade, while SCHA only delivered 6% increases. Thanks to this superior dividend profile, I would rather buy and hold IJR for the long term, but I don't think investors can go wrong with either ETF.

Josh Kohn-Lindquist has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Rocket Companies and iShares Trust - iShares Core S&P Small-Cap ETF. The Motley Fool recommends LKQ and Lumentum. The Motley Fool has a disclosure policy.