Schwab Small Cap ETF Tops State Street in Returns and Diversification

The Schwab U.S. Small-Cap ETF(NYSEMKT:SCHA) offers broader diversification across more than 1,700 holdings, while the State Street SPDR Portfolio S&P 600 Small Cap ETF(NYSEMKT:SPSM) provides a leaner portfolio with slightly lower costs.

Both funds target the small-cap segment of the U.S. equity market but follow different index strategies. While the State Street fund focuses on the S&P SmallCap 600, the Schwab fund tracks the Dow Jones U.S. Small-Cap Total Stock Market Index, leading to differences in concentration and volatility.

Snapshot (cost & size)

Metric SPSM SCHA Issuer SPDR Schwab Expense ratio 0.03% 0.04% 1-yr return (as of April 27, 2026) 38.70% 44.10% Dividend yield 1.50% 1.10% Beta 1.04 1.10 AUM $15.2 billion $22.0 billion

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

The State Street fund is slightly more affordable with an expense ratio of 0.03%. Investors focused on income may also prefer its higher payout, as it offers a 1.50% trailing-12-month distribution yield compared to 1.10% for its peer.

Performance & risk comparison

Metric SPSM SCHA Max drawdown (5 yr) (27.90%) (30.80%) Growth of $1,000 over 5 years (total return) $1,324 $1,334

The Schwab U.S. Small-Cap ETF focuses on the broader small-cap market, with sectors led by Technology at 18.00%, Financial Services at 16.00%, and Industrials at 16.00%. Its 1,728 holdings include large positions in SanDisk(NASDAQ:SNDK) at 3.23%, Lumentum Holdings(NASDAQ:LITE) at 1.39%, and Revolution Medicines(NASDAQ:RVMD) at 0.59%. This fund was launched in 2009, has ~$22.0 billion in assets under management (AUM), and has a trailing-12-month dividend of $0.34 per share.

In contrast, the State Street SPDR Portfolio S&P 600 Small Cap ETF targets a more concentrated group of 607 holdings. Its sector exposure tilts toward Industrials at 17.00%, Financial Services at 17.00%, and Technology at 16.00%, with top holdings including FormFactor(NASDAQ:FORM) at 0.61%, Viavi Solutions(NASDAQ:VIAV) at 0.58%, and Semtech(NASDAQ:SMTC) at 0.58%. The State Street fund was launched in 2013, manages ~$15.2 billion in AUM, and paid $0.77 per share over the trailing 12 months.

For more guidance on ETF investing, check out the full guide at this link.

What this means for investors

Small-cap stocks -- companies too small to crack the S&P 500 -- have historically outperformed large caps over long time horizons, but with a catch: The small-cap universe is littered with unprofitable, speculative companies that can drag returns down significantly. How a fund handles that reality is often what separates good small-cap exposure from great small-cap exposure.

Story Continues

SCHA takes the broadest possible approach, tracking roughly 1,700 small-cap stocks with no filter for profitability. If a company is small enough, it's in. SPSM is more selective, tracking the S&P SmallCap 600, which requires companies to demonstrate profitability before gaining admission. That quality gate has historically helped the S&P 600 avoid some of the worst small-cap blowups.

The real choice is philosophical: maximum breadth or a quality screen that weeds out the weakest names before they land in your portfolio. Investors who believe in owning the entire small-cap market -- profitable or not -- will find SCHA the purer expression of that conviction. Those who want small-cap exposure with a built-in layer of quality control will find SPSM the more disciplined choice.

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Sara Appino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lumentum and Viavi Solutions. The Motley Fool has a disclosure policy.

Schwab Small Cap ETF Tops State Street in Returns and Diversification was originally published by The Motley Fool

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