Adam McCullough: Gold-rated Schwab U.S. Broad Market ETF is an excellent strategy for exposure to nearly every investable stock in the U.S. equity market. This fund enjoys a sustainable advantage over its category peers by tracking a broadly diversified and representative index for a low cost. It tracks the market-cap-weighted Dow Jones U.S. Broad Stock Market Index, which holds the largest 2,500 U.S. stocks. Market-cap-weighting pulls the portfolio toward the largest U.S. stocks and accurately reflects the composition of the market.
Low turnover is a key advantage of the fund's broad market-cap-weighted approach because it mitigates transaction costs and the likelihood of taxable capital gains distributions. Compared with index funds that target specific market-size segments, this fund benefits even more from market-cap-weighting because it doesn't have to sell or buy names as they cross arbitrary market-cap size breakpoints. The fund's average turnover over the past five years through 2018 has measured a small fraction of its average category peer. It also hasn’t distributed any taxable gains since its inception in 2009.
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Adam McCullough does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.