This Popular ETF Just Had 1 of Its Biggest Portfolio Adjustments Ever. What Investors Need to Know.
Key Points
In late March, the Schwab U.S. Dividend Equity ETF saw one of its largest-ever annual portfolio adjustments.
The underlying index the ETF followings greatly reduced its energy exposure after a big run.
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While the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) is one of the most popular exchange-traded funds (ETFs) around, some people may not realize it tracks the Dow Jones U.S. Dividend 100 Index.
However, the index it follows isn't like the S&P 500, which occasionally adds and subtracts new members throughout the year. Instead, the Dow Jones U.S. Dividend 100 Index undergoes a large annual reconstitution each year in March, and the one for 2026 that just happened greatly shifted the ETF's portfolio.
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The annual reconstitution is intended to ensure that the index isn't falling into any value traps or situations where an index member could be at risk of cutting its dividend. While the index's focus is on dividend stocks, it takes into consideration a stock's dividend yield and dividend growth, and it also looks for a strong balance sheet and operational efficiency. That's why metrics like a company's free cash flow to total debt ratio and return on equity (ROE) play major roles in determining which stocks are added to or removed from the index.
Image source: Getty Images.
The March 2026 reconstitution, meanwhile, looks like one of the index's biggest ever. The index has historically seen portfolio turnover of 8% to 15% with its March reconstitution. Turnover jumped to 19% last year. For 2026, it was a whopping 31%, as the index added 25 new stocks and removed 22.
Interestingly, the index saw a major reversal in its energy exposure. Last year, it increased its energy sector exposure from around 12.3% to nearly 21%, while this year it took it down from 23.5% to 16.3%. The energy sector has been hot to start the year, so Schwab U.S. Dividend Equity ETF is lowering its exposure after some nice gains. Meanwhile, healthcare and technology were the biggest gainers this year.
Below are the ETF's sector weightings before and after the adjustments.
| Sector | Old Weighting | New Weighting | Change |
|---|---|---|---|
| Healthcare | 15.4% | 18.9% | 3.6 pp |
| Technology | 7.8% | 11.2% | 3.4 pp |
| Communication services | 4.7% | 7% | 2.3 pp |
| Consumer staples | 18.3% | 19.4% | 1 pp |
| Financials | 0.1% | 8.9% | 1 pp |
| Utilities | 16.2% | 0% | 0 pp |
| Industrials | 12.1% | 11.8% | (0.3 pp) |
| Consumer discretionary | 7.3% | 6.4% | (0.9 pp) |
| Materials | 3% | 9% | (3 pp) |
| Energy | 23.5% | 16.3% | (7.1 pp) |
Data source: Schwab Asset Management.
Meanwhile, the index removed some big holdings, including two that were previously in its top 10: drugmaker AbbVie and networking company Cisco Systems. Health insurer UnitedHealth Group was its biggest new addition, followed by drugmaker Abbott Labs and consumer staple giant Procter & Gamble.
Below are the ETF's top holdings at the end of 2025 (left) and as of April 9 (right).
| Company | Ticker | Prior Allocation | Rank | Company | Ticker | Current Allocation |
|---|---|---|---|---|---|---|
| Bristol-Myers Squibb | BMY | 4.3% | 1 | Texas Instruments | TXN | 4.4% |
| Merck | MRK | 4.1% | 2 | UnitedHealth Group | UNH | 4.3% |
| ConocoPhillips | COP | 4.1% | 3 | Chevron | CVX | 4.1% |
| Lockheed Martin | LMT | 4.1% | 4 | Merck | MRK | 4.2% |
| Chevron | CVX | 4% | 5 | Coca-Cola | KO | 4.1% |
| Verizon Communications | VZ | 4% | 6 | ConocoPhillips | COP | 4% |
| AbbVie | ABBV | 4% | 7 | PepsiCo | PEP | 3.9% |
| Cisco | CSCO | 4% | 8 | Amgen | AMGN | 3.8% |
| Coca-Cola | KO | 4% | 9 | Verizon Communications | VZ | 3.8% |
| Altria | MO | 4% | 10 | Procter & Gamble | PG | 3.8% |
Data source: Schwab Asset Management.
A better-positioned portfolio
The Schwab U.S. Dividend Equity ETF has nicely outperformed the broader market this year on the back of its energy holdings, but it was fortuitous timing to see the underlying index cut these holdings after their recent outperformance. Much of this strong performance stems from rising oil prices driven by the conflict with Iran, which could prove temporary. Meanwhile, the portfolio is now much better balanced over the rest of the year.
With value starting to come back in favor, now can be a great time to add the ETF to your holdings.
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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AbbVie, Abbott Laboratories, Amgen, Bristol Myers Squibb, Chevron, Cisco Systems, Merck, and Texas Instruments. The Motley Fool recommends ConocoPhillips, Lockheed Martin, UnitedHealth Group, and Verizon Communications. The Motley Fool has a disclosure policy.
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