When looking at an ETF and considering its place in a portfolio do you place more weight on the ETF holdings or the benchmark that it tracks? For example, Schwab’s small-cap ETF (SCHA) is comprised of about 1/3 mid-cap stocks according to Morningstar and tracks the Dow Jones U.S. Small-Cap Total Stock Market Index. According to www.trackinsight.com, the tracking error over the last 5 years is 0.04%.
Would you treat this purely as a small-cap position since it tracks a small-cap index, or categorize it as some kind of small/mid-cap hybrid based on the securities within the ETF?
Since passive ETFs and the indexes they usually follow only reconstitute their underlyings once or twice a year, many small caps grow to mid cap size during that time. The issue with mid caps is they’re not technically a space as the R1000 includes most mid caps. The mid cap names being held in SCHA are likely just barely above $5B in market cap so I wouldn’t worry about it. You can always do a holdings overlap and see what you’re dealing with.
Anyway, treat it as a small cap. It’s as close as you’re going to get.
Yeah, I decided to categorized it based on the index that it tracks.
lol yea It’s like when you buy the s&p 500 and think you are long the us only. Over 40 percent of their sales are foreign.