SCHH ETF

I included shares of the Schwab U.S. Dividend Equity ETF and the Cohen & Steers Quality Income Realty Fund in The Dividend Income Accelerator Portfolio to increase income and diversify the portfolio. The Schwab U.S. Dividend Equity ETF now makes up 21.22% of our dividend portfolio, which improves its risk-reward balance. Meanwhile, the Cohen & Steers Quality Income Realty Fund accounts for 8.70% of the portfolio, enhancing both dividend income and our investment in the Real Estate Sector.

REITs have not done well in 2024 due to fluctuating interest rates. SCHH offers low costs, good liquidity, and is showing a positive trend. The recent drop in value, linked to rising interest rates, presents a chance for investment when considering the future into 2025.

The Schwab U.S. REIT ETF has under-performed the broader market and cash since last January. The ETF's performance has been less than impressive, making a "hold" rating accurate. I recommend moving beyond passive ETF investing for Real Estate and taking a more active and/or individualized approach.

The iShares US Real Estate ETF (IYR) and the Charles Schwab US REIT ETF (SCHH) came under pressure last week as concerns about real estate valuations and high-interest rates rose. IYR, SCHH, and VNQ, ETFs that track the industry have dropped in the past three straight weeks as outflows have risen.

Real estate focused ETFs have pulled back this year as investors wait for a wall of maturities in the coming years. The Vanguard Real Estate ETF (VNQ), Schwab US REIT ETF (SCHH), and the SPDR Real Estate Select Sector fund (XLRE) have all pulled back by almost 7% from their highest point this year.

Schwab's U.S. REIT ETF has demonstrated consistent performance, a low expense ratio, and relatively high dividend yield. Vanguard's Real Estate Index Fund has outperformed SCHH over the long term and has greater diversification. VNQ's holdings have advantages over SCHH, including lower weight on overvalued REITs and a top holding in Vanguard's institutional shares.

REITs have seen valuations compress on higher rates and FFO has been pressured on higher debt costs and lower occupancy. Consensus points to a 22% potential upside, suggesting analysts are factoring in a rate cut in YE24. I think SCHH is a speculative buy, as it requires a decline in Fed rates to regain valuation levels.

The Schwab U.S. REIT ETF is a cost-effective option for gaining exposure to the U.S. real estate market. The ETF holds a diversified portfolio of approximately 124 holdings, with a high concentration in the top ten holdings. SCHH has underperformed compared to its peers and carries potential sector risks, making it a less desirable choice for risk-averse investors.

Schwab U.S. REIT ETF is a popular REIT ETF with a focus on low-cost investing in U.S. equity REITs. It has a strong bias towards defensive sectors such as telco tower, industrial, multi-family residential, and data center REITs. SCHH has underperformed the S&P 500 and its comparable ETF, VNQ, due to the elevated exposure to interest rate risk and sector-skew facing challenges.