Schwab US Dividend Equity ETF Reverses In December: What's Going On?

The Schwab US Dividend Equity ETF SCHD has given back more than half of its one-year gains in the last month, with the ETF falling more than 7% in December. Here's a look at what may be plaguing the fund. 

What To Know: The Schwab US Dividend Equity ETF is heavily weighted in the healthcare sector with four pharmaceutical stocks representing 15.83% of the fund's total holdings. The sector has underperformed recently as increased uncertainty emerged surrounding the potential appointments and policy changes that could come under President-elect Donald Trump. 

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Healthcare Holdings

Bristol-Meyers Squibb Co. BMY is the fund's top pharmaceutical holding, representing 4.64% of its assets. The stock is down 2.6% over the past month.

Pfizer, Inc. PFE is also in the fund's top 10 holdings. It fell more than 5% following the presidential election as the vaccine-maker faces an uncertain political and regulatory environment ahead. 

AbbVie, Inc. ABBV and Amgen, Inc. AMGN round out the dividend-focused fund's healthcare holdings.  AbbVie shares are down slightly, though Amgen shares are down by more than 10% in December following disappointing clinical trial results from its weight-loss drug candidate, MariTide. 

Interest Rates: Another factor that could be affecting the Schwab dividend-focused fund is the uncertain interest rate environment. Dividends tend to become more attractive to investors in a low-interest rate environment. Recent comments from the Federal Reserve suggest a more hawkish outlook with inflation remaining sticky and above the Fed's target rate of 2%. 

Additionally, the incoming Trump administration could again play a factor as Trump has pledged to raise tariffs on foreign imports which could reignite inflation and lead to interest rates staying higher for longer. 

When interest rates are high, the yields on bonds and other fixed-income securities become more competitive, making dividend yields less appealing by comparison. 

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