3 Schwab ETFs to Load Up on Before the Next Market Rally

Charles Schwab offers several ETFs that give investors exposure to a basket of stocks with very little effort. Some of these ETFs go on to outperform the market, and they look especially good heading into a market rally.

Strong earnings, the Fed’s forecast of a 0.5% rate drop by the end of the year, and artificial intelligence are some of the catalysts that can help the stock market rally past all-time highs. If you’re bullish on the stock market and like Schwab’s brokerage platform, you may want to consider these three Schwab ETFs.

Schwab US Large-Cap ETF (SCHX)

The Schwab US Large-Cap ETF (NYSEARCA:SCHX) is a good ETF for investors who want growth with some risk mitigation. The fund has a 1.22% SEC yield and a 0.03% expense ratio. It can deliver solid results during rallies but has enough defensive picks to minimize losses during corrections.

The fund has delivered an annualized 15.5% return over the past five years, and a strong focus on tech is one of the key reasons why. Approximately one-third of its assets are in the tech sector, with financial services and consumer cyclicals being the only two other sectors with more than 10% of the fund’s total assets. It’s well-diversified across more than 700 equity holdings, but its top 10 holdings make up 34% of its total assets.

Magnificent Seven stocks lead the way. Broadcom (NASDAQ:AVGO) and Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) are the only two stocks in the top 10 that aren’t Magnificent Seven stocks. All stocks in the top 10 have market caps above $1 trillion.

Schwab US Large-Cap Growth ETF (SCHG)

The Schwab US Large-Cap Growth ETF (NYSEARCA:SCHG) is similar to SCHX, but it’s a riskier ETF that can generate higher returns during bullish markets. Shares have more than doubled over the past five years and only come with a 0.04% expense ratio. The fund has been pretty consistent, with an annualized 16.4% return over the past 15 years.

Like many top-performing ETFs, the Schwab US Large-Cap Growth ETF is practically a playground for the Magnificent Seven stocks. Eli Lily (NYSE:LLY) swaps out with Berkshire Hathaway to join Broadcom as the only non-Magnificent Seven stocks that make up the top 10 holdings. Speaking of those top 10 holdings, they happen to make up 56% of the fund’s total assets. This top-heavy allocation is why SCHG is riskier than SCHX but typically produces higher returns when the market is bullish.

The fund is filled with large-cap growth stocks, while SCHX holds a mix of growth large-cap stocks and mature large-cap stocks. Investors who want to maximize their returns and have a few years to wait out any turbulence may want to consider SCHG over SCHX.

Schwab 1000 Index ETF (SCHK)

The Schwab 1000 Index ETF (NYSEARCA:SCHK) offers the most diversification of the three Schwab ETFs. This fund has almost 1,000 holdings, but even with this amount of diversity, you’ll still find the Magnificent Seven stocks at the top of the list. The top 10 holdings make up 33% of its total holdings, and the fund also places close to one-third of its assets into tech stocks. 

There isn’t too much of a difference between SCHK and SCHX. SCHK has a 0.03% expense ratio and a 1.17% SEC yield, and both of those numbers are nearly identical to SCHX. The fund’s 15.3% annualized return over the past five years is barely below the annualized 5-year return for SCHX.

Fawning over the Magnificent Seven stocks has been a relatively safe bet among growth ETFs. Sure, these ETFs go down more than low-volatility funds during market corrections. However, these Schwab ETFs are the same ones that can outperform the stock market when equities soar.

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