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For years, the Schwab U.S. Dividend Equity ETF (SCHD) has parlayed a combination of high yield, strong risk-adjusted returns and a conservative investing approach to become the 2nd largest dividend ETF in the marketplace behind only the Vanguard Dividend Appreciation ETF (VIG).

Times have changed, however, over the past 2-3 years. Since coming out of the 2022 stock/bond bear market, SCHD’s performance hasn’t just been subpar. It’s been downright miserable.

According to ETF Action, of the 79 U.S. dividend ETFs with the necessary history, SCHD’s 3-year average annual return of 4% ranks 58th in the category.

Within Morningstar’s Large Value category, SCHD’s performance falls into the bottom 6%, including annual performance easily falling into the bottom quartile for 2023, 2024 and year-to-date 2025.

This has no doubt been frustrating for investors who saw a lengthy string of consecutive years where SCHD performed in the top 1/3 of its peer group and expected something similar going forward for their portfolio. It’s a good reminder that even the best strategies, including SCHD’s, don’t deliver above average returns all the time. No trend ever outperforms indefinitely and SCHD, despite what is a solid & thoughtful stock selection strategy and strong track record of returns, isn’t immune either.

That hasn’t stopped investors from continuing to pile in though. In fact, SCHD has been one of the best in the business at drawing in new money over the past three years, the same three years when its underperformed its benchmarks badly.

Within just the dividend ETF universe, SCHD’s $31 billion net inflow over the past three years stands #1 in the category and it’s not even close.

Here’s maybe even a more impressive stat. In terms of the biggest net inflows of 2025 so far, SCHD ranks #11 of ALL ETFs, primarily behind many of the industry’s most popular products.

We know that investors still believe quite firmly in SCHD and its place in their portfolios.

But should they? Given how poorly it’s performed since the beginning of 2023, should investors begin to rethink its place in their portfolios? Should they consider at least drawing down their exposure just a bit? Should they stay the course and ride out the market’s inevitable ups and downs? Maybe even buy the dip?

Let’s try to answer those questions.

SCHD: What’s Caused Its Underperformance?

It probably helps to take a look at why SCHD has performed so poorly lately.

Given that the fund completely reconstitutes itself annually means the root causes of performance can change over time. We do know a couple of themes that tend to pervade regardless of the specific sector & security composition.

• SCHD is market cap-weighted, so it will have a large-cap tilt.

• The focus on durable dividend payers means it’s low growth, value-oriented and higher quality.

• Dividend yield is a selection criteria, so its yield will be much higher than that of the S&P 500.

SCHD’s annual reconstitution, most recently completed in March, tends to result in minor to modest changes to the fund’s sector allocations, but it’s the “who’s in, who’s out” that often draws more attention.

This year’s reconstitution, however, saw some bigger changes. In particular, the allocation to energy jumped from 12% to 21%, while the allocation to financials dropped from 17% to 8%.

Healthcare also saw a modest reduction in its weighting and staples got an increase.

We’ve only seen this new allocation in place for about two months, but it’s become clear that the reconstitution has been performance-negative so far. Over the past two months, financials have modestly beaten the S&P 500, while energy has underperformed the index by 7%.

That’s just the short-term. What have the longer-term factors been over the past few years?

The biggest driver, not surprisingly, has been the tech/growth rally. Coming out of the 2022 bear market, it’s been almost all mega-cap tech stocks and the magnificent 7. Not only has SCHD’s deep value tilt worked against it, its modest 8% allocation to tech (which usually remains fairly consistent over time) has caused it to miss out on the market’s biggest winners.

Another factor has been the inclusion of mid-caps in the portfolio. Depending on your definition of mid-caps, SCHD has roughly twice the allocation to this group than does the S&P 500. Again, the market’s preference for mega-caps over the past few years has likely rendered any fund with a larger small stock allocation an underperformer.

That part isn’t surprising, the fact that SCHD and so many ETFs like it have lagged the S&P 500. What’s more surprising is why it’s performed so poorly versus it’s large-cap value fund peers.

Here could be some reasons (note: all comparisons are to the Russell 1000 Value index, not the S&P 500):

• Compared to the index, SCHD’s market cap allocations are roughly the same, so that mid-cap allocation is no longer to blame.

• Sector allocations play a big part, especially three in particular - energy, financials and consumer staples.

  • SCHD has been very underweight to financials, a sector that has not only doubled the performance of the index, but even beaten the S&P 500 over the past three years.

  • A significant overweight to energy, even before the big increase as part of the recent reconstitution, has been an anchor. Its 3% total return over the past three years has been among the worst in the market.

  • Consumer staples has about double the allocation of the index. While it hasn’t performed as poorly as energy, materials or real estate, it’s been a steady underperformer throughout.

The takeaway is that when you’re on the wrong side of the trade in three of your ETF’s largest over/underweights, even relative to its peer index instead of the S&P 500, you’re bound to get deeply disappointing results.

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SCHD: Buy, Sell or Hold?

Ideally, portfolio diversification is meant to smooth out the long-term ride and manage risk & drawdowns. In many cases, that means a year or two of outperformance followed by a year or two of underperformance with the hope that you come out ahead over the longer-term.

SCHD has been an anomaly. It’s had 9 really good years followed by 3 really bad ones. That kind of track record had made SCHD look almost invincible prior to 2023 and was the primary driver in making it one of the biggest dividend ETFs around. That’s made the past three years feel that much more painful.

Long-term, it’s worth pointing out that SCHD still carries a 4-star Morningstar rating. That means it’s still been an above average performer for anyone who has bought and sold over the past decade-plus. That’s not much solace for those who have bought recently, but I think it still shows that SCHD’s approach has delivered long-term.

In the end, it comes down to index construction to me. Passively-managed funds are merely meant to track an index. Outperformance or underperformance is a function of the market and not manager aptitude.

SCHD looks at dividend growth history, dividend yield and fundamental quality metrics in its security selection process. Finding a strategy that hits on all pillars is rare and does a really good job of acting as cross-checks against each other. You could probably make an argument that there’s overfit in the selection process, but I still like how it looks.

For me, SCHD is still a winner and one of my favorite dividend ETFs available to investors. I believe in its selection strategy and think it will deliver solid results over the longer-term. Admittedly, I’d prefer to see a little less streakiness in its outperformance/underperformance, but again that’s a function of the markets.

In the near-term, I’d be skeptical of SCHD’s ability to return to leadership. Despite the tariff back-and-forth, I think conditions probably still favor growth over value. Tax cuts (assuming the bill eventually passes) are usually a positive for risk assets and that could keep tech and growth in the driver’s seat. We’ll see how the inflation and labor market data play out, but I think this outcome is more likely than not based on what we know right now.

In summary, I think SCHD is worth holding on to. You may even want to consider buying the dip here assuming you’re willing to buy-and-hold. Dividend ETFs, especially, are meant for this and will eventually come back into favor at some point.