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SCHD Current Sector Allocation
Data as of May 2025
Key Metrics
Consumer Defensive and Energy sectors represent significant concentrations, making up nearly 40% of SCHD's portfolio.
Sector Comparison
Notable Differences:
SCHD has significantly higher exposure to Energy (+14.2%) and Consumer Defensive (+9.3%) sectors compared to S&P 500, while being underweight in Technology (-18.7%).
Detailed Sector Breakdown
| Sector | SCHD Weight | S&P 500 Weight | Difference | Risk Assessment |
|---|---|---|---|---|
| Consumer Defensive | 19.70% | 10.40% | +9.30% | Overweight |
| Energy | 19.53% | 5.30% | +14.23% | Highly Overweight |
| Healthcare | 15.26% | 12.90% | +2.36% | Balanced |
| Industrials | 11.06% | 8.30% | +2.76% | Balanced |
| Technology | 9.78% | 28.50% | -18.72% | Highly Underweight |
| Consumer Cyclical | 9.54% | 12.10% | -2.56% | Balanced |
| Financial Services | 8.65% | 13.40% | -4.75% | Underweight |
| Communication Services | 4.88% | 8.20% | -3.32% | Underweight |
| Utilities | 1.20% | 2.50% | -1.30% | Balanced |
| Materials | 0.40% | 2.30% | -1.90% | Balanced |
| Real Estate | 0.00% | 2.60% | -2.60% | Underweight |
Diversification Analysis
Herfindahl-Hirschman Index
Measures market concentration. Lower values indicate better diversification.
| ETF | HHI Score | Concentration |
|---|---|---|
| SCHD | 0.137 | Moderate |
| S&P 500 | 0.126 | Low |
| DGRO | 0.108 | Low |
| SPYD | 0.165 | High |
Shannon Entropy
Measures diversification. Higher values indicate better distribution across sectors.
| ETF | Entropy Score | Diversification |
|---|---|---|
| SCHD | 2.03 | Good |
| S&P 500 | 2.26 | Very Good |
| DGRO | 2.18 | Good |
| SPYD | 1.87 | Moderate |
Potential Risk Exposure
Sectors that may present concentration risk for SCHD investors.
- • Energy (19.53%): Oil price volatility
- • Consumer Defensive (19.70%): Inflation impact
- • Tech Underexposure: Growth limitation
- • Financial Services: Interest rate sensitivity
Interpretation:
SCHD shows a moderate level of sector concentration with a slightly higher Herfindahl Index compared to the S&P 500 and DGRO. While this indicates less perfect diversification, it's by design as SCHD focuses on high-quality dividend-paying companies, which naturally leads to higher weights in traditional dividend sectors like Consumer Defensive and Energy. This strategy has historically provided more stable income but may lead to performance divergence from broader market indices during certain economic cycles.
Understanding Sector Exposure
Why Sector Allocation Matters
Sector allocation is a critical component of portfolio construction that affects both risk and return. Different sectors respond differently to economic conditions, interest rates, inflation, and other market factors.
Benefits of Appropriate Sector Exposure:
- • Diversification across economic cycles
- • Reduced vulnerability to sector-specific downturns
- • Exposure to different growth and income opportunities
- • Balance between defensive and cyclical exposures
- • Strategic positioning based on economic outlook
Risks of Sector Concentration:
- • Increased volatility during sector-specific downturns
- • Potential underperformance when out-of-favor sectors lag
- • Regulatory exposure when specific industries face new rules
- • Valuation risk when concentrated in expensive sectors
- • Reduced diversification benefits during market stress
SCHD's Sector Strategy
SCHD tracks the Dow Jones U.S. Dividend 100 Index, which selects stocks based on dividend yield, dividend growth history, financial stability, and other fundamental factors. This selection process naturally leads to specific sector biases:
Sectors Typically Overweight:
-
Consumer Defensive
Companies with stable cash flows and consistent dividends like consumer staples -
Energy
Traditional energy companies with strong dividend histories -
Healthcare
Established pharmaceutical and healthcare companies
Sectors Typically Underweight:
-
Technology
Growth-oriented tech companies often prioritize reinvestment over dividends -
Real Estate
REITs are often excluded due to different taxation and dividend characteristics -
Materials
Cyclical nature can lead to dividend inconsistency
Portfolio Implications
Investment Considerations
Understanding SCHD's sector exposure helps investors make informed decisions about how to position it within a broader portfolio:
SCHD as a Core Holding
If using SCHD as a core portfolio holding (>20% of your portfolio), consider complementing it with:
- • Growth-oriented ETF with technology exposure (e.g., QQQ, VUG)
- • Small-cap fund to diversify away from large-cap focus
- • International dividend ETF for geographical diversification
- • REITs for real estate exposure not found in SCHD
SCHD as an Income Component
If using SCHD primarily for income generation, be aware of:
- • Sector-specific risks, particularly energy price volatility
- • Interest rate sensitivity of consumer defensive stocks
- • Potential underperformance during technology-led bull markets
- • Contribution to overall portfolio sector concentration
- • Tax implications of dividend income in taxable accounts
Sector Risk Mitigation Strategies
| Risk Area | Potential Issue | Mitigation Strategy |
|---|---|---|
| Energy Overweight | Vulnerability to oil price fluctuations and energy transition risks | Add clean energy ETFs or utilities for diversified energy exposure |
| Technology Underweight | Missing growth opportunities in tech revolution | Complement with QQQ, VGT, or other tech-focused ETFs |
| Real Estate Absence | Missing inflation hedge and diversification benefits | Add VNQ, SCHH, or similar REIT ETFs |
| Consumer Defensive Concentration | Vulnerability to rising input costs during inflation | Balance with cyclical exposure through sector ETFs |
| Financial Underweight | Missing potential benefits from rising interest rates | Consider financial sector ETFs (XLF, VFH) in rising rate environments |
Frequently Asked Questions
Is SCHD too concentrated in specific sectors?
SCHD does have higher concentrations in specific sectors like Consumer Defensive and Energy compared to broader market indices. However, with a Herfindahl Index of 0.137, it falls in the moderately concentrated range rather than highly concentrated. For comparison, sector-specific ETFs typically have HHI values above 0.8, while the S&P 500 has an HHI of 0.126. If SCHD represents a large portion of your portfolio, consider complementary ETFs to offset these sector tilts.
How often does SCHD's sector allocation change?
SCHD's sector allocation changes through two mechanisms: (1) annual index reconstitution, which typically occurs in March, and (2) ongoing market value fluctuations of existing holdings. While individual companies may be added or removed during reconstitution, sector weights tend to shift gradually unless there are significant changes in the dividend landscape. Since 2020, the largest sector shift has been the increase in Energy allocation from 6.2% to 19.53%.
How does SCHD's sector allocation impact its performance?
SCHD's sector allocation significantly influences its performance relative to the broader market. During periods when Energy, Healthcare, and Consumer Defensive sectors outperform (often during economic uncertainty or value-oriented markets), SCHD tends to outperform the S&P 500. Conversely, during strong technology-led rallies or growth markets, SCHD may underperform due to its underweight position in Technology stocks. This sector allocation is by design, as SCHD focuses on stable, dividend-paying companies rather than maximizing total return through growth stocks.
Should I be concerned about SCHD's low technology exposure?
Whether SCHD's low technology exposure is concerning depends on your overall portfolio composition and investment goals. If SCHD is your only or primary holding, you may be significantly underexposed to the technology sector, which has been a major driver of market returns in recent years. However, if SCHD is part of a diversified portfolio that includes growth-oriented investments with technology exposure, this underweight position may actually provide beneficial diversification. Many investors deliberately pair SCHD with a technology-focused ETF like QQQ or VGT to create a more balanced exposure profile.
How does SCHD's sector exposure affect its dividend stability?
SCHD's sector concentration in traditional dividend-paying industries like Consumer Defensive, Energy, and Healthcare generally supports dividend stability. These sectors tend to maintain dividend payments even during economic downturns. However, the significant Energy exposure (19.53%) does introduce some vulnerability to commodity price fluctuations, which could impact dividend growth during prolonged oil price declines. Overall, SCHD's sector allocation reflects its focus on reliable dividend payers with strong financial health, which has historically contributed to its consistent dividend growth record.
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