The Schwab US Dividend Equity ETF (SCHD) has underperformed the market this year. SCHD was trading at $26.80, down by over 6% from its highest point this year and up by over 14.4% from the lowest point in April. 

This article examines why the SCHD ETF has underperformed the market this year and identifies some of the key catalysts that will likely drive its performance in the coming weeks.

SCHD ETF has underperformed because of the ongoing AI trend

The SCHD ETF has had a total return of just 0.88% this year. In contrast, ETFs tracking the S&P 500, Nasdaq 100, and Dow Jones have returned 14%, 18%, and 10%, respectively.

SCHD vs VOO vs QQQ vs DIA

There are two main reasons for this. First, the SCHD ETF is a value-based fund made up of companies that have demonstrated having robust dividend growth over time. 

Most of these companies are traditional names that have no presence in the booming artificial intelligence industry that has propelled the broader stock market higher. 

The AI theme has transformed many companies this year, with popular names like Nvidia, Google, Meta Platforms, and Broadcom becoming trillion-dollar entities. Analysts believe that the AI theme has more room to run, with many companies in the industry experiencing substantial demand.

The SCHD ETF has also underperformed the market because of its composition, with energy being the biggest constituent sector, with a share of about 18%. This includes companies like Chevron, ConocoPhillips, Valero Energy, and Murphy Oil.

Energy stocks have continued to underperform the market this year as the crude oil price has tumbled in the past few months. Brent, the global benchmark, has dropped in the last four consecutive weeks and is hovering at $61, its lowest level since May 5. It has dropped by over 26% from its highest level this year.

Second, the SCHD ETF has underperformed because of its Financials holdings. The financials segment accounts for about 8.9% of the fund, with most of the constituent companies being those in the regional banking sector.

These names include popular companies like Fifth Third, Regions Financial, Comerica, and Bank OZK. These banks have come under scrutiny in the past few days because of the lingering concerns about their credit quality after three of them reported fraud-related losses.

These concerns brought memories of 2023 when banks like Silicon Valley Bank, Signature, and First Republic collapsed. This explains why short interest in the SPDR Bank ETF has jumped to 30%.

The SCHD ETF has also lagged because of Donald Trump’s policies. For example, healthcare companies, which account for about 15% of the portfolio, has struggled after Trump promised tariffs on imported drugs.

Top catalysts for the Schwab US Dividend Equity ETF

Looking ahead, the next key catalysts for the SCHD ETF are the ongoing earnings season, which will accelerate in the coming weeks. Hundreds of companies, many in the fund, will release their earnings in the latter part of the month. Strong earnings will boost its performance.

The other notable catalyst for the SCHD ETF will be the upcoming trade talks between the US and China, which will culminate in a meeting between Donald Trump and Xi Jinping next week at the APEC Summit in South Korea. A trade deal will support the US stock market.

Further, the Federal Reserve will deliver its interest rate decision next week, and analysts expect it to cut interest rates by 0.25%. The stock market normally benefits when there are rate cuts.

SCHD ETF technical analysis 

SCHD ETF stock chart | Source: TradingView

The daily timeframe chart shows that the SCHD ETF stock has pulled back in the past few weeks, moving from a high of $27.75 in August to the current $26.80.

It has moved below the lower side of the descending channel and the 50-day Exponential Moving Average. It recently retested the lower side of the channel, completing the break-and-retest pattern.

Therefore, the fund will likely continue falling, with the next key support level to watch being at $25.97, its lowest level in August.

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