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More than 400 new exchange traded funds have come to market – 406 to be precise, as of Nov. 24 – and with a month left in 2021, it's reasonable to expect that tally will grow.
No matter what the final count is, the number of new ETFs debuting in the U.S. smashes the record of 319 set just a year. In other words, there are now nearly 2,700 ETFs trading in the U.S., more than a quarter of which debuted between January 2020 and today.
In a crop as large as the 2021 batch of rookie ETFs there are bound to be some nifty products, some that are far-fetched and unlikely to succeed and some boring pure beta fare.
However, boring can be beautiful (and appealing) for advisors and clients alike, particularly when it comes to new ETFs. Take the case of the Schwab International Dividend Equity ETF (NYSEARCA:SCHY), which debuted in late April.
Sizing Up SCHY
SCHY has a lot of things going for it and those favorable fundamentals could be appealing to advisors, as well.
Notably, SCHY already has $131.6 million in assets under management. That's enough to make it eligible for many of the custodial platforms advisors use. Second, Schwab, much like Vanguard, is associated with easy-to-understand, low-cost products. That could make SCHY an easy sell with clients looking for international exposure. Third, SCHY is the international counterpart to the Schwab US Dividend Equity ETF (NYSEARCA:SCHD), one of the largest and least expensive dividend ETFs.
“The fund tracks the Dow Jones International Dividend 100 Index. The index draws stocks from the Dow Jones Ex-U.S. Large-Cap and the Dow Jones Ex-U.S. Mid-Cap indexes,” writes Morningstar's Ben Johnson. “It kicks REITs to the curb and only invests in Chinese stocks that trade on developed-markets stock exchanges. Like its U.S. cousin, the benchmark looks for stocks that have paid dividends for at least a decade. It applies additional minimum market-cap and liquidity screens to ensure investability and then ranks stocks that make the cut by their indicated dividend yield.”
SCHY holds 109 stocks, which is a decent amount considering this is an international fund with a dividend requirement. With the dividends for at least a decade mandate, SCHY is predictably Europe-heavy with that region accounting for over 53% of the fund's weight.
Japan, a relatively new entrant to the international shareholder rewards party, accounts for almost 12% of the fund's roster. That's meaningful for clients because Japanese companies are flush with cash and can support dividend growth for years to come.
“The next step is where SCHY’s bogy is a bit different from SCHD’s. The index calculates the three-year U.S.-dollar-denominated price volatility of the top 400 stocks as ranked by the composite score calculated in the prior step,” adds Johnson. “It then selects the 100 top-scoring stocks that have trailing three-year price volatility that is less than or equal to the 60th percentile of the top 400.”
More SCHY Perks
SCHY keeps with the Schwab tradition of low fees. It charges 0.14% per year, or $14 on a $10,000 investment. That's about 30 basis points below the category average. Plus, SCHY can take some of the edge off investing outside the U.S.
“The benchmark’s fundamental screens and emphasis on less-volatile stocks should help to curb the risk associated with leaning toward higher-yielding names,” concludes Johnson.
See, not all new ETFs are wacky, complex ideas. SCHY is rather elegant in its utility and appeal to a broad swath of investors.