The Schwab US Dividend ETF (SCHD) has underperformed the market this year. Its total return this year was 2.34%, much lower than the performance of the S&P 500 and Nasdaq 100 indices. This article explores why this ETF has underperformed and some of the top alternatives to buy.

Why the SCHD ETF has underperformed

The SCHD ETF has continued to underperform the market because of its composition, which is made up of traditional companies. Unlike other ETFs like QQQ and VOO, it has no major exposure to artificial intelligence, which has driven the stock market rally this year.

A closer look at the top gainers in the stock market this year has been companies like Micron Technology, Palantir, Lam Research, and KLA Corp that have jumped by over 80%.

Instead, the biggest constituent companies in the index are in the energy, consumer staples, health care, industrials, and finance. The top firms in the fund are the likes of Amgen, Cisco, AbbVie, Merck, Coca-Cola, and Chevron.

While these are all blue-chip companies, they have largely fallen out of favor with market participants in favor of the red-hot AI companies.

SCHD ETF v other top funds

READ MORE: Here’s why the SCHD ETF is lagging and key catalysts to watch

Avantis International Small Cap Value ETF (AVDV)

The Avantis International Small Cap Value ETF is one of the best-performing ETFs this year and is a well-known brand for being highly uncorrelated from the broader market.

This fund finds its value by investing in over 1,500 companies from other countries other than the US and has over $13 billion in assets. It is an active fund that does not track any benchmark index.

The AVDV ETF has done well this year despite having no major exposure to the AI industry. Instead, most companies are in the industrials, materials, financials, and consumer discretionary sectors.

Most of its companies are from Japan, the UK, Canada, and Australia. Some of the top companies are companies that most people in the US have never heard of, including Mitsui Kinzoku, Marks and Spencer, Perseus Mining, Ocean Gold, and Regis Resources.

The firm AVDV ETF has had a total return of 40% this year, higher than SCHD’s 2.34%. It has also done better than funds tracking the S&P 500 and Nasdaq 100.

Fidelity High Dividend ETF (FDVV)

The Fidelity High Dividend ETF (FDVV) is a better ETF than the SCHD. Created by Fidelity, this fund invests in companies that have demonstrated a track record of paying dividends over the years.

Most of the companies in the fund are in the technology industry, followed by financials, consumer staples, utilities, and real estate. Some of the top names in the index are Nvidia, Microsoft, Apple, Broadcom, and JPMorgan.

This composition has helped it do well this year and beat the SCHD ETF. Its total return this year is 15.78%, much higher than SCHD’s 2.34%. It will likely continue doing well because of its composition.

Amplify Enhanced Dividend Income ETF (DIVO)

The Amplify Enhanced Dividend Income ETF is another dividend fund that is beating the SCHD this year.

DIVO uses a unique approach, where it invests in companies with a long track record of paying dividends and those with strong earnings growth.

The fund’s approach involves a tactical covered call strategy on each stock in the fund. A covered call is a situation where an investor buys an asset and then writes a call option on it, earning the premium.

The top companies in the DIVO ETF are firms like RTX, American Express, CME Group, JPMorgan, and IBM. Its total return this year is 17.20%, higher than that of SCHD and other top covered call ETFs like JEPI and JEPQ.

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